Airline Industry Course Level 2

The Airline Industry
14-17th November 2017 Singapore

Some introductions………………………….
WHO are you ?

WHERE do you work ?
WHAT is your job title, and
WHAT are your main responsibilities?
WHY are you attending this course ?
What are you expecting!!??
BJI Consulting Ltd 2

About me………………..
• Experience
– 30years British Airways – wide variety of roles,
including external secondment’s and 17 years
overseas, primarily Asia, Middle East & Africa
– 10years consultancy & voluntary sector
• Education
– Manchester University BA Hons Geography
– Lancaster University MBA
– SOAS London Diploma Mandarin Chinese
– Henley Business School UK – Executive
Coaching Diploma
• Areas of Interest
– China business development
– Business Change program delivery
– Cross cultural management
BJI Consulting Ltd3
Some Ground Rules………
• Speak up….no question is irrelevant
• Be curious….be questioning….. The more you push me the

better the discussion we can have
• The student file / powerpoints give you plenty of information.

It includes some extra reading / reference material
• BUT if you have specific interest in a topic not covered I can

always add in material and give you further references as well
as giving separate group briefings

Course Objectives
• To broaden knowledge of the global airline industry, with

discussion of its challenges and opportunities
• To gain a deeper understanding of the different elements of

managing an airline business

Course Topics – a busy schedule!
• Airline Industry Overview – structure, trends & current

performance
• Airline Costs & Economics
• Demand & Traffic Forecasting
• Fleet Planning
• Revenue & Yield Management
• Airline Marketing
• Different Business Models
• Airline Alliances
• Aero-politics & Regulatory issues
• Environment & Airlines

How will we cover all the topics !!?
• It will require effort! And some evening preparation /
teamwork / reading
• Mixture of Powerpoints & class discussion
• Group discussion/review of business cases followed by open
forum debate
• Individual Group presentations on Day 4 lasting 15/20
minutes – more about that tomorrow…..

Group Discussion
What are the challenges and opportunities for

the airline industry?

Module 1
Airline Industry Overview – Structure,
trends and current performance

„Change‟ is a constant challenge…………….
• Economic uncertainty globally – BREXIT just the latest!

• Political and social shifts
• Disruptive technological changes
• Airline Alliances and Joint Ventures – not just for legacy
airlines
• Business model evolution / transformation – LCC >
hybrid
• Customer experience (CEM) – digital/mobile impacts
• Increasing retail and „lifetime‟ value focus
• Regulation impacts – positive and negative
• Environmental issues – now its for real

Airline industry – size & importance
• 56.6m jobs supported by aviation

worldwide*
• 3.5% of global GDP is supported
by aviation*
• Airlines facilitate global migration
and the mix of people from
different cultural backgrounds
• 3 billion passengers
• US$697 billion revenue
• 182 billion freight tonnes of cargo
• Several thousand airlines
• Over 200 international airlines
*Oxford Economics
What factors stimulate airline traffic?
• World economic growth

• Disposable income and the level and type of economic
activity
• The price of air travel
• Quality and availability of air services (safety, frequency,
comfort)
• Ethnic, cultural and trade links
• Attraction of the destination
• Maturity effects (number of days available for holiday)
• Advantageous geographic location

So where are we now?, an industry
perspective………

Airline profitability over the last 40 years
Source: ICAO, IATA, http://www.iata.org/pressroom/facts_figures/Pages/vision-2050.aspx BJI Consulting Ltd 14

Record for the airline industry
10.0 Global commercial airline profitability 40

8.0 30
6.0 EBIT margin
20
4.0
2.0 10
revenues
0.0 0
billion
US$
-2.0 Net post-tax -10
%
-4.0
-6.0 -20
-8.0 -30
-10.0 -40
2000 2002 2004 2006 2008 2010 2012 2014 2016
Source: ICAO, IATA Economics

Record 2015 profits still only $8.27 per passenger
Worldwide airline net post-tax profit per departing passenger, 2015
250
$205.37 $197.10 $8.27
Ancillaries
200 Ancillaries
150
Fare
100
50
Cargo
0
Revenue Cost Net profit
Source: IATA
Connections doubled, real transport costs halved
Unique city-pairs and real transport costs
18,000 4
16,000
3.5
14,000
3
Number of unique city-pairs
12,000
US$/RTK in 2014US$
10,000 2.5
8,000 2
6,000
1.5
4,000
1
2,000
- 0.5
1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014
Source: Boeing, OAG, ICO, IATA
Air Travel Trends
Index (1990=100)
180
Fuel efficiency
160
140
120
100
80
Fares (2012 US$)
60
40
Fatal accidents*
20
0
1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012
* 5-year moving average fatal accidents per passenger departure
Source: Constructed from worldwide data from ICAO and IATA
Economic growth uneven but rising
10 IMF forecasts for economic growth Forecast

8
6
Emerging
4 economies
year-on-year %
Developed
2
economies
0
change
-2
-4
-6
2000 2002 2004 2006 2008 2010 2012 2014 2016
Source: IMF World Economic Outlook, October 2015

Oil price outlook uncertain but low
Brent crude oil price
140
120
100
80 International
US$ per
Energy Agency
barrel
60
40
20 Goldman Sachs
0
2010 2011 2012 2013 2014 2015
Source: Platts, IEA, Press reports

Very different businesses
800 Airlines revenues from passengers and cargo 90
700 80
Passenger revenue, US$
Revenue from tickets
Cargo revenues, US$

and ancillaries
600 70
500 60
400 Revenue from 50
billion
cargo
billion
300 40
200 30
1995 2000 2005 2010 2015

Connecting more cities at lower prices
20000 Unique city-pairs and real transport costs 2.50

18000 Unique city 2.30
pairs
Number of unique city-pairs
16000 2.10
US$/RTK in 2014US$
14000 1.90
12000 1.70
10000 Cost of air transport, 1.50
after CPI inflation
8000 1.30
6000 1.10
4000 0.90
2000 0.70
0 0.50
1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017
Source: IATA Economic Performance of the Airline Industry – end year 2016 report

$6000bn trade carried, $650bn air tourist spend
Value of trade carried by air and the spending of tourists
800 8000
Value of traded goods carried by air 7000

700
6000
Tourist spend, US$ billion
Traded goods, US$ billion

600
5000
500
4000
Spending by tourists carried by air
400
3000
300
2000
200 1000
2000 2002 2004 2006 2008 2010 2012 2014
Source: IHS Global Insight, UNWTO, IATA
Commoditization problem starting to be addressed
2013 ancillaries and operating profits, % revenues
35%
Allegiant
30%
25% Ryanair
Ancillaries as % revenues
20% Easyjet
Aer Lingus Air Asia
Flybe 15% United Alaska
Qantas JetBlue
10%
Korean Frontier Delta
5%
Hawaiian
PIA Spicejet SAA BA JAL
0%
-20% -15% -10% -5% 0% 5% 10% 15% 20%
Operating profits as % revenues
Source: IdeaWorks, Airline Analyst, IATA

Finally airline profits become „normal‟
US Pre-tax profits, year to Q32105

35
30
25
20
15
% operating
10
revenues
5
0
Source: A4A

Asset utilization raised and sustained
Breakeven and achieved weight load factor

68
Achieved LF
66
64
ATKs
%
62
Breakeven LF
60
58
2000 2002 2004 2006 2008 2010 2012 2014 2016

Only two regions have seen significant gains
15% Operating profit margins by region, 2016 vs 2010
2010 2016
10%
revenues
5%
%
0%
-5%
N America Europe Asia Pacific Middle East Latin Africa
America
Source: ICAO, The Airline Analyst, IATA Economics

The Aviation Value Chain – balance?
Source: IATA 2013 study BJI Consulting Ltd 28

Globalization has paused
International trade compared to global industrial production

1.2
Index ratio, 2005 equals
1.1
1.0
0.9
0.8
0.7
1
0.6
1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014
Source: Netherlands CPB

Outlook for 2017
 Favorable economic environment
 Travel business remains strong
 Cargo slowly improving
 A second year of „normal‟ profits
 „Normality‟ not yet widespread or secure

This year will be slower but still close to trend
Global RPK growth and passenger numbers

16 4,500
Numbers of passengers, million

Growth in global
% change over previous year
14
Passenger 4,000
12 RPKs
numbers
10 3,500
8 3,000
6
4 2,500
20-year trend
2 2,000
growth rate
0
1,500
-2
-4 1,000
2000 2002 2004 2006 2008 2010 2012 2014 2016
Source: IATA Economic Performance of the Airline Industry – end year 2016 report

Improving forecast – but fragile
Source : IATA Chart of the Week Jun2 2017

Still very much a growth story
% year-on-year Diffusion index

16% 65
Growth in industry RPKs(LHS)
12% Global services PMI index 60
(adv. 2 months, RHS)
8% 55
4% 50
Global manufacturing PMI
0% index (adv. 2 months, RHS) 45
-4% 40
-8% 35
-12% 30
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Sources: IATA Economics, IATA Monthly Statistics, Markit
IATA Economics www.iata.org/economics

Though much variation by travel market
RPKgrowth by int'l route and dom. market (latest month, % year-on-year*)

20% *Note: int'l routes data are for January;
domestic market data are for February
Domestic India
15%
Middle East - North America
Domestic Russia
Europe - Middle East Within Europe
10% Middle East - Asia Domestic China
Within Asia
Asia - North America
Asia - SWPacific Europe - Asia
5% Europe- C. America
Africa - Europe
Domestic Japan Europe - North America
0%
Domestic US
Domestic Australia
North - SouthAmerica
-5% Domestic Brazil
0% 2% 4% 6% 8% 10% 12% 14% 16%
Share of total global RPKs (Year ended Jan 2017)
Sources: IATA Economics, IATA Monthly Statistics by Route

Long-term expansion of airline traffic
Global O-D passenger journeys (billion)
9
8 Reflation/open borders scenario
7
Constant policies scenario
6
4
Pick-up in Protectionism scenario
3
2
2014 2016 2018 2020 2022 2024 2026 2028 2030 2032 2034
Source: IATA/Tourism Economics Air Passenger Forecasts, September 2016 IATA Economics www.iata.org/economics

Large potential in populous but (currently) poor
markets
Source: IATA Economics using data from PaxIS+ and Oxford Economics IATA Economics www.iata.org/economics
Demographics vary by market
%change
35% The UN's projected change in population (2015-2035,%)
30%
UN projections adjusted for demographic factors
25%
20%
15%
10%
5%
0%
-5%
-10%
-15%
-20%
-25%

China largest increment, US remains
important Corresponding CAGR
China 5.2%
United States 2.6%
India 6.7%
Indonesia 3.5%
Vietnam 8.2%
Turkey 5.2%
Brazil 2.6%
Philippines 6.0%
Australia 3.0%
Mexico 4.2%
0 100 200 300 400 500 600 700 800

Change in domestic O-D markets (millions, 2015-2035)

The GFC precipitated one key divergence
Air travel and cargo volumes
280 7,000
Passenger RPKs
6,000
230
5,000
billion
billion
RPKs
FTKs
180
Cargo FTKs 4,000
130
3,000
80 2,000
1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015
Source: ICAO, IATA

Retreat from globalization
World GDP and cross-border trade growth
15
10 World trade growth

% change over previous
5 World GDPgrowth
-5
year
-10
-15
2000 2002 2004 2006 2008 2010 2012 2014 2016
Source: IMF World Economic Outlook and the World TradeOrganization

Supply chains have been shortened
Index (Oct 2008=100)
Share (%)
120 52
World trade/IP ratio vs. measure of global supplychains
50
110
48
100 46
44
World trade/IP ratio
90 42
40
80
Ratio of foreign value added to domestic 38
70 value added in world grossexports 36
34
60
32
50 30
1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015
Source: Netherlands CPB, UNCTAD IATA Economics www.iata.org/economics

But growth in demand for travel and cargo is solid
Growth of air travel and air freight
25%
20%
Freight (FTK) growth
15%
year-on-year % growth
10% Travel (RPK) growth

20-year
5% average
growth rate
0%
-5%
-10%
-15%
-20%
2008 2009 2010 2011 2012 2013 2014 2015
Source: IATA
Though cargo growth should be much stronger
International trade compared to global industrial production
1.2
1.1
1.0
Index, 2005=100
0.9
0.8
BEFORE: FTKs AFTER: FTKs

growth 6.4% p.a growth 3.2% p.a.
0.7
0.6
1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014
Source: Netherlands CPB, IATA

But growth has returned to cargo
% year-on-year % year-on-year
30% 40%
Global PMI new export 30%

20% Growth in industry FTKs
orders component
(adv. 2 months) 20%
10% 10%
0%
0%
-10%
Implied PMI series if the
-10% index remains flat at its
-20%
February 2017 level over
the coming months -30%
-20%
-40%
-30% -50%
2010
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2012
2013
2014
2015
2016
2017
2011
Sources: IATA Economics, IATA Monthly Statistics, Markit

Source: Markit, IATAStatistics

Despite sluggish world trade
Indices (Jan 2012=100, seasonally adjusted)
130
120
110
100 Global FTKs
90 World trade
80 volumes
70
60
115
110 Rising FTK
share
105
100
Ratio of global FTKsto
95
world trade volumes
90
200
201
201
200
200
200
200
200
200
200
200
200
201
201
201
201
201
201
6
0
1
2
3
4
5
6
7
8
9
0
1
2
3
4
5
7
Sources: IATA Economics, IATA Monthly Statistics, CPB

Source: IATA Statistics, Netherlands CPB

Traffic accelerating ahead of capacity growth
RPKs and ASKs growth
14%
12%
10%
% change on year
ASKs
8%
6.2% => 5.6%
6%
earlier
4% RPKs
5.9% => 5.1%
2%
0%
2011 2012 2013 2014 2015 2016 2017
Source: IATA using data from The AirlineAnalyst IATA Economics www.iata.org/economics

Margin squeeze signs of easing?
140 Airline passenger yield (constant fx) and crude oil prices,indexed 110
105
Indexed to equal l 100 in Jnauary

120
100
100 Pax yield 95
80
-8% => 0% 90
US$ per
85
barrel
60
80
40 Oil price 75
44.6 => 55 $/b
70
20
65
0 60
2011 2012 2013 2014 2015 2016 2017

Industry profitability is more resilient to the cycle
EBIT or operating margins and global GDP growth

10%
8%
Airline industry
EBIT margin
6%
4%
2%
0%
-2% Global GDP

growth
-4%
-6%
1970 1975 1980 1985 1990 1995 2000 2005 2010 2015
Source: IATA using data from ICAO, the IMF and our own forecasts

At last investors are getting a „normal‟ return
Return on capital invested in airlines
10.0
Cost of capital (WACC)
9.0
8.0
7.0
6.0
% of invested
5.0
4.0
capital
Return on capital
3.0 (ROIC)
2.0
1.0
0.0
1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016
Source: IATAEconomic Performance of the Airline Industry, End-Year 2016 report IATA Economics www.iata.org/economics

Other sectors do better
Return on capital across the air transport supply chain
30%
25%
1996-2014 2007-2014
20%
ROIC
15%
%
10%
5%
0%
Source: McKinsey for IATA IATA Economics www.iata.org/economics

Aircraft fuel efficiency has improved dramatically
Source: Lee IATA Economics www.iata.org/economics

But costs typically passed through to prices
Unit cost and the price of air transport
4.0 7.0
Boeing 707
3.5 6.0
US$ in 2013 prices to fly a tonne kilometer
US$ in 2013 prices per tonne kilometer

3.0
5.0
1973
2.5
oil
crisis 4.0
2.0 US deregulation
3.0
1.5
EU deregulation
2.0
1.0 Unit cost
(US$/ATK)
0.5 1.0
Price
(US$/RTK)
0.0 -
1950 1960 1970 1980 1990 2000 2010
Source: ICAO, IATA

In fact prices have fallen further than costs
Breakeven and actual load factors
70%
Load factor achieved

65%
60%
% ATKs
Breakeven load factor +15%

55% points
50%
45%
1970 1975 1980 1985 1990 1995 2000 2005 2010
Source: IATA, ICAO

Consumers have been the major beneficiaries
Unique city-pairs and real transport costs
18,000 3.5
Unique city pairs
16,000
3
14,000
Number of unique city-
12,000 2.5
10,000
US$/RTK in
2
2014US$
8,000
6,000 1.5
Real cost of air transport
pairs
4,000
1
2,000
- 0.5
1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014
Source: ICAO, Boeing, OAG, IATA

Very wide variety of business models
2015 ROIC = adjusted EBIT/revenue * revenue/invested capital
0.45
0.40 Jazeera Increasing return
0.35
Spring Ryanair on capital (ROIC)
EBIT margin , adjusted
0.30 Mesa Spirit Allegiant
0.25 Volaris Alaska

PFIZER Hawaiian Southwest
0.20 JetBlue
EBIT/revenue
Air China AMR JAL Delta

0.15 United Easyjet
Aeromexico
Air Canada
0.10 PIA IAG Qantas
Lufthansa
Cathay SIA ANA
0.05 LATAM
Comair
GOL AF-KLM WALMART
Korean
0.00
-0.05
-0.10 Thai
0.00 0.50 1.00 1.50 2.00 2.50
Capital productivity ($ revenue per $ invested capital)

US performance dominating industry totals
15% Net post-tax profit margins
10%
2015 2016
5%
0%
-5%
-10%
N America Europe Asia Pacific Midle East LAmerica Africa
Source: IATAEconomic Performance of the Airline Industry, End-Year 2016 report

Airlines jobs hit 2.5m adding lots of GVA to economy
Airline industry jobs and GVA per employee
2.6 100,000
GVA per employee

2.5
90,000
2.4
GVA/employee, US$/year
80,000
Jobs, million
2.3
Airline jobs 70,000

2.2
60,000
2.1
50,000
2.0
1.9 40,000
2000 2002 2004 2006 2008 2010 2012 2014
Source: IATA, Oxford Economics

Oil price outlook uncertain but low ?

140
120
100
80 International
US$ per
Energy Agency
barrel
60
40
20 Goldman Sachs
0
2010 2011 2012 2013 2014 2015
Source: Platts, IEA, Press reports

Rise in US$ offsets part of low fuel price benefits
The Brent crude oil price and the US dollar
160 95
US dollar
140 90
US dollar trade weighted index

120 85
Oil price, US$ per barrel
100 80
80 75
60 70
40 65
20 60
2008 2009 2010 2011 2012 2013 2014 2015
Source: Datastream
Trade and tourism
Value of trade carried by air and the spending of tourists
700 8000
600 7000
6000
500
5000
US$ billion
US$ billion
400
4000
300 Spending by tourists
carried by air 3000
200
Value of traded goods 2000
100 carried by air
1000
0 0
2000 2002 2004 2006 2008 2010 2012 2014
Sources: IATA, UNWTO, WTO BJI Consulting Ltd 60

Economic growth uneven but rising
10 IMF forecasts for economic growth Forecast
8
6
Emerging
4 economies
year-on-year %
Developed
2
economies
0
change
-2
-4
-6
2000 2002 2004 2006 2008 2010 2012 2014 2016
Source: IMF World Economic Outlook, October 2015

This time is different for global GDP growth?
5 IMF forecasts of global economic growth (using market
exchange rates) April April April Jan
4 2013 2014
2015 2016
3
July 2016
2
Trade
1 restrictions
scenario
0
-1
-2
-3
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Source: IATA using data from the IMF‟s World Economic Outlook

Industry profitability declining but how fast?
16% Quarterly profile for airline industry operating profits (EBIT)
14%
12%
10%
8%
EBIT as %
revenues
6%
Operating margin
4% 8.3% => 6.6%
2% Net profits
$39.6bn => $29.8bn
0%
-2%
2011 2012 2013 2014 2015 2016 2017
Source: IATAEconomic Performance of the Airline Industry – end year 2016 report IATA Economics www.iata.org/economics

Profitability not due to business model or region
Airlines generating average EBIT margins of more than 8% during the
2000s
Average EBIT margins, 2000-09
INDUSTRY L America
LAN N America
LCC
Aegean Mid East
Southwest Airlines Asia-Pacific
Singapore Airlines Europe
Full service
Emirates
long-haul
Pinnacle Airlines
Aeroflot
Turkish Regional
Air Arabia
GOL
Allegiant
COPA
Republic Airways
Ryanair
0% 5% 10% 15% 20% 25%
EBIT margin %, 2000-2009
Source: IATA Vision2050 report http://www.iata.org/pressroom/facts_figures/Documents/vision-2050.pdf
Centre of gravity of air travel shifting fast
towards China
1914 2004 2015 2035
Source: IATA Economics using data from PaxIS+ IATA Economics www.iata.org/economics

Significant change in top-10 markets over next 20
years
US China
China US
UK India
Japan UK
Spain Indonesia
Germany Japan
India Spain
Italy Germany
France Brazil
Indonesia Turkey
2015 2017 2019 2021 2023 2025 2027 2029 2031 2033 2035

Urbanization is a key driver
5-10 mln
10-15 mln
15-20 mln
> 20 mln
Urban Popn. 2015
Source: UN, SRS Analyser BJI Consulting Ltd 67
Expanding middle classes drive travel and air
cargo flows – needs investment expansion
Global middle income class in 2009 and prediction for 2030
Europe
North America
Asia Pacific
Middle East &
North Africa
Central &
South America
Sub Saharan
Africa
100mn 2030
500mn 2009
1bn
Source: OECD, Standard Chartered Bank BJI Consulting Ltd 68

Fragmentation remains a problem in many markets
Market share of top-4 airlines/JVs
81% 36% 42%

68%
51%
33%
48%
59%
Source: SRS Analyser

EK 2000
Source DIIO SRS Analyser
Source: CTAIRA BJI Consulting Ltd 70

EK 2014

EK China and Africa 2000

EK China and Africa 2014

Geographical Advantage
Source: Turkiish Airlines BJI Consulting Ltd 74

TK 2000 – non-European routes

TK 2014 – non European routes

TK China and Africa 2000

TK China and Africa 2014

BA long haul 2000

BA long haul 2014

Opportunity for new business models to develop…..
 Deregulation & open skies ?  Opportunity to simplify
 Lazy legacy carriers and processes?
opportunities for changes ?  Technology enabled airlines
 Critical mass of customers with and customers ?
disposable income at both  Retail opportunities that can be
origin /destination ? sold via the website / mobile ?
 Price stimulation possible ?  VFR and holiday markets (plus
business) to give sufficient
 Disgruntled point-to-point
density ?
passengers ?
 Economies of scale with route
 Secondary airports keen for
centres possible, not one-route
traffic?
wonders ?
 Opportunities to boost aircraft
 Poor surface competition ?
utilisation ?
 Adoption of new selling
technologies & processes

Speed of LCC development - Europe
Low Cost Routes 2000 Low Cost Routes 2007
Source: OAG, SRS Analyzer BJI Consulting Ltd 82

And Asia……………..

Total LCC seats – SE Asia

„Dual Brand‟ strategies – „Mango‟

Korean Air – Jin Air

„Low cost carrier cost advantage‟
Source: Air France/Deloitte & Touche BJI Consulting Ltd 87

Vueling “Low cost – Premium” = Hybrid

Source : IAG Investor 2014
Convergence of Business Models
Source: Adapted from Low cost carries: How are they changing the market dynamics of the US airline BJI Consulting Ltd 89
industry? Erfan Chowdhury, Carlton University, Ottowa
Infrastructure , aircraft and „connectivity‟
• Infrastructure provision vs growth
• ATC provision and coordination
• Aircraft developments & providers
• Increasing need for integration of systems and data

usage/analysis
• „Data‟ and customer experience management ( CEM )

Operating Margins – needs to be pushing
towards 10%
Source : CAPA BJI Consulting Ltd 91

Industry Structure
Network carriers working

within Alliances
Second tier of Small number of Joint Ventures

allies alliance leaders & Mergers
NMA‟s on
short- haul to
Longhaul
Is there room for Vertically integrated
NMA‟s coop with unaligned, mid- Charter airlines
Alliances/ Network sized airlines ?
airlines
Group Exercise : Airline x ?
• History – component parts – subsidiaries -

ownership
• Network
• Aircraft types
• Product – air - ground – distribution
• Partners – Codeshares
• Strategy

Module 2
Airlines Costs & Economics

Group Discussion
• What are the main costs for an airline?
• Where can you save costs?

Annual Reports
“As I come to the
Balance Sheet figures,
oxygen masks will drop
from the ceiling”

Source:
WATS 2016
97
BJI Consulting Ltd
Singapore Airlines 2016/2017

Airline Costs & Economics
• What does an airline produce?

• How to effectively manage :
– Flights?
– Seats?
– Distance?

Airline Economics
• The answer: Available Seats x Kilometres (ASKs)
• The number of seats available for sale times the distance

flown
• Most useful for measuring and benchmarking performance
10
BJI Consulting Ltd
0
Airline Economics
 RASK = revenue / ASKs (How much revenue you‟re

producing for each seat kilometre flown)
 CASK = costs / ASKs (How much it costs to produce
each seat kilometre flown)
10
BJI Consulting Ltd
1
Airline Economics
Components of RASK:
 Yield: revenue / revenue passenger kilometre (RPKs)…
counts only the seats which are filled with paying
passengers
 Load Factor: RPKs / ASKs… the percentage of all
available seats that are filled with paying passengers
10
BJI Consulting Ltd
2
Airline Economics
Other Performance Measurements

• Breakeven load factor
• Stage length (average distance flown)
• Fleet/aircraft utilization
• CASK ex fuel
• RASK ex ancillaries
• Average fare (unlike yield, doesn’t account for distance)
10
BJI Consulting Ltd
3
Other Performance Indicators
- Number of complaints per 1000 pax

- Number of baggage mishandled per 1000 pax
- On-time performance: departure and arrival
- Number of RPK‟s per employee
- Number of passengers per employee
- Average flight distance
- Utilisation in hours per aircraft
10
BJI Consulting Ltd
4
Types of costs
• Direct operating costs – vary directly with the actual number

of flights
• Indirect operating costs – vary based on the size of the

schedule over the medium term
• Fixed costs / overheads – do not vary with the size of the

operation
10
BJI Consulting Ltd
5
Profit
= REVENUE – COSTS
=REVENUE – (DOC’s + IOC’s + FIXED)
10
BJI Consulting Ltd
6
Airline Costs
Total Costs
Non-operating Costs Operating Costs

•Interest expenses
•Affiliate losses
•Miscellaneous items
e.g. foreign exchange losses Indirect Operating Costs Direct Operating Costs
Fixed IOC Variable IOC Fixed DOC Variable DOC

•Rental of equipment •Ticketing, sales, promotion •Aircraft ownership
•Rental of facilities, offices •Passenger handling •Hull insurance
•Depreciation of facilities •Stations •Lease rentals
•Administrative overhead •Interest
HR, ICT, Treasury •Maintenance burden
•Commissions
•GDS fees
•Catering
Cyclic Distance
•Taxes •Landing charges •Fuel
•Ground handling •Maintenance
Source: Eef van Herpt, derived from: •Navigation charges
S. Holloway; Straight and Level: Practical Airline Economics •Maintenance
•Crew costs
10
BJI Consulting Ltd
7
Lower fuel costs
200 Brent crude oil price and jet fuel price
180
160
140 Jet fuel
US$ per barrel
120
100
80 Crude oil price
60
40
20
0
2008 2009 2010 2011 2012 2013 2014
10
Source: Platts BJI Consulting Ltd
8
Currency impact- Easyjet
Curren cy split – total reven u e Curren cy split – total costs
USD Euro
34% 35%
Euro
41%
48% Sterling
1%
Other 5%
3% Swiss Franc
8% 25%
Other
Swiss Franc Sterling
F '13 currency impact favorable / (adverse)

£m EUR CHF USD Other Total
Revenue (5) (3) 1 1 (6)
Fuel 1 - (5) - (4)
Costs excluding fuel (33) (2) - 1 (34)
Total (37) (5) (4) 2 (44)
11
10
Source:Easyjet 2013
Average effective Euro rate for revenu e for FY13 was € 1.19 (FY12: € 1.19)
Ave rage e ffe ctive Euro rate for costs for FY13 was € 1.19 (FY12: € 1.22)
BJI Consulting Ltd
9
Major costs
• Fuel is currently about 30-35% of airlines DOC’s

• Maintenance is about 10-14%of airlines total costs
• User charges – landing, parking, en route navigation about 5-
15% of total costs
• Ground handling about 10-12% of costs
• Staff Asia Pacific 15-20% to USA 35%
11
BJI Consulting Ltd
0
Some effects on cost
• Sector length – aircraft utilization – fleet size – labour costs
• Aircraft type – efficiency – crew complement – number of

engines – age of aircraft –aircraft size – aircraft speed
• Outsourcing or keep ‘in-house’
11
BJI Consulting Ltd
1
Building the economic „ model‟ for airlines…….
Market demand Number of passengers and tonnes cargo
Route frequency and destinations
Aircraft type and size and range Seat and cargo capacity
Aircraft production ASK’s( pax ) and ATK’s ( cargo)
Traffic revenue RASK and RPK’s and RTK’s
Capacity utilization Load factors
Operating costs Per flying hour for each type of aircraft
Fixed or overhead costs
Product quality / market positioning Influences costs & brand image
Yield A result of type of market demand, the price

levels achieved & sector distances
Anciliary revenues An increasing component of total revenues
11
BJI Consulting Ltd
2
The Original LCC Business model
• Single Fleet Type
• Cabin Service
– Single class
– Higher seat density (+20 seats)
– No catering/pay-for catering
• Operations
– Point-to-Point
– Shorter Stage Lengths (500 miles)
– High Load Factors ( 75-90%)
– No Interlining Service or Baggage Transfer
– Fast turn times (20-25mins.)
– High aircraft utilization (12 hrs/day)
11
BJI Consulting Ltd
3
The competitive advantage of Low cost carriers?
…..but it is changing..
Lower compensation costs
Higher crew productivity & commonality
Reduced cabin crew
High aircraft utilisation
11.6c ( €/ASK) Labour New generation aircraft and commonality
Fuel hedging, winglets
0.5 Aircraft and
fuel Direct sales only
No GDS Fees
1.2 Distribution, product No commission on ticket sales
and overhead
Use of secondary airports
Low ground handling charges
2.2 Airport charges, Allows for quick aircraft turnarounds
ground handling
2.4 20% more seats/aircraft

Seat
Density
1.1 4.1c ( €/ASK)
Ryanair’s cost advantage
Average unit cost of British Airways, Note: Stage lengths are adjusted Unit cost
Air France and Lufthansa of Ryanair
Source: IATA Airline Cost Performance
11
BJI Consulting Ltd
4
Ancilliary Growing in Size
11
Source: Amadeus Guide Ancillary Revenue by IdeaWorks BJI Consulting Ltd
5
Anciliary Revenue – British Airways
50 0
Targeting 5 0 % of customers
450 buying more than just a flight
400
35 0
30 0 Upgrade
250 Baggage
Seat ing
200
BAH Ground
15 0
10 0
50
0
2011 2012 2013 2014 2015
*BAH = BA Holidays = ground revenue, not contribution
11
BJI Consulting Ltd
6
Porter‟s 5-forces show the high intensity of competition
- making a profit is a hard task
Source: IATA‟s Vision2050 report http://www.iata.org/pressroom/facts_figures/Documents/vision-2050.pdf

11
BJI Consulting Ltd
7
Group Discussion
What and where will be future sources of airline demand?
11
BJI Consulting Ltd
8
Module 3
Traffic & Demand Forecasting
11
BJI Consulting Ltd
9
Segmentation of demand
• Grouping into smaller subgroups of individuals that have

similar characteristics and needs and will respond similarly to
a marketing action
• 20% business & 80% leisure
• Segmentation also can be done by demographics
Business traveler Leisure traveler VFR traveler

 Convenience  Price  Price
 Comfort  Schedule  Culture Comfort
 Reliability  Destinations  Schedule
Typical air passenger market segmentation

12
Price Elasticity
• The percentage change in the market that occurs for a 1%

increase in price
• Business traffic ‘generally’ price insensitive – in elastic

demand
• Leisure traffic is generally price sensitive – eleastic demand
12
BJI Consulting Ltd
1
Business segment lucrative for airline and
unique compared to leisure segment
• There are relatively few

• The number of trips they take depends largely on economic
conditions--not purely price promotions (price inelastic)
• Influence of TMC’s vs best price on the day vs new
technologies for distribution / booking
• Travel policy shifts
12
BJI Consulting Ltd
2
Business segment lucrative for airline and
unique compared to leisure segment
• They are the earliest adopters of technology (e.g. internet)

• They are relatively easy to identify and target-but difficult to
steer with promotions
• They demand schedule, price and purchase flexibility
• An early target market for CEM applications
12
BJI Consulting Ltd
3
Holiday travelers are sensitive to price
• Needs: package of air and land content
– Product and price responses: inclusive tours, airline holiday
programs
• Needs: pre-planned solutions
– Product and price responses: brochures featuring
departures for a year ahead, guaranteed bookings
• Needs: new places to see
– Product and price responses: Development of new
destinations
BUT
• Changes to buying behaviour and online / mobile impacts
12
BJI Consulting Ltd
4
Traffic Forecasting
• At a MACRO level : Industry, Region, Airline, Sub system
• At a MICRO level : City pair, Flight, Product
• Use of Scenario methods
• Extrapolation
• Econometric modelling
12
BJI Consulting Ltd
5
Econometric Modeling
• Inputs if traffic history, economic forecasts & history coupled
with traffic forecasts
• Gravity models based on city size and demographic/economic
indicators
• Origin and destination (O & D ) analysis
• Quality Service Index ( QSI) modeling particularly for
connecting passengers
• Catchment area analysis
12
BJI Consulting Ltd
6
Global Market Forecast 2017: Highlights
vs. % change
World Fleet Forecast 2016 2036
GMF16 2016-2036
RPK (trillions) 7.0 16.5 +3.1% 135%
Passenger Aircraft Fleet 18,890 40,120 +6.4% 112%
New passenger
aircraft deliveries 34,166 +1,741
Dedicated Freighters 1,610 2,410 +14.2% 50%
New freighter aircraft

deliveries 733 +88
Total New Aircraft Deliveries 34,899 +1,829
2 Notes: Passenger aircraft (≥ 100 seats) | Jet freight aircraft (>10 tonnes)
Source: Airbus GMF 2017
Source : Airbus 2017 Market Forecast et al BJI Consulting Ltd 127

20-year demand for almost 35,000 new passenger
and freighter aircraft
24,807 single-aisle
aircraft
+1,277 vs GMF 2016
5.3
8,686 twin-aisle aircraft $US trillion
+626
1,406 very large aircraft

-74
34,899 new aircraft

+1,829
3 Notes: Passenger aircraft (≥ 100 seats) | Jet freight aircraft (>10 tonnes)
12
BJI Consulting Ltd
8
Single-aisle represent 71% of units, and
widebodies represent 54% of value
Number of aircraft
30,000
24,810
25,000
20,000
15,000
10,000 8,690
5,000
1,410
0
Single-aisle Twin-aisle Very Large Aircraft
% units 71% 25% 4%
% value 46% 44% 10%

4 Notes: Passenger aircraft (≥ 100 seats) | Jet freight aircraft (>10 tonnes), Rounded figuresto the nearest 10
12
BJI Consulting Ltd
9
Fleet in service evolution
Number of aircraft*
45,000
40,000
35,000
22,030 Growth
30,000
20-year
25,000 34,900 new deliveries
20,000
15,000
12,870 Replacement
10,000 20,500
5,000
7,630 Stay
-
Beginning 2017 2036 New Deliveries
5 Notes: Passenger aircraft (≥ 100 seats) | Jet freight aircraft (>10 tonnes), Rounded figuresto the nearest 10
13
BJI Consulting Ltd
0
2016 was a good year
Number of countries 142 countries
90
81% of world population
78
80 88% of world GDP
70 64
60
50
42
40
30
20
20
10
0
<0% [0% - 5%] [5% - 10%] >10%
% - ASK growth 2015-2016
6 Source: ICAO, OAG, IHS Economics, Airbus GMF
13
BJI Consulting Ltd
1
World load factors remain at record levels
World passenger load factor - %
85%
80%
80%
75%
70%
69%
65%
60%
1996 2001 2006 2011 2016
7 Source: ICAO, OAG, IHS Economics, Airbus GMF
13
BJI Consulting Ltd
2
Air transport growth is highest in expanding regions
Yearly RPK growth
2016 - 2036
Emerging/Developing
China
India
Middle East
Rest of Asia
Africa
CIS
6.4 +5.8 %
billion people
Latin America
Central Europe in 2016
Advanced
1
Western Europe
Israel
North America
Japan
Singapore billion people
+3.2 %
South Korea in 2016
Australia/New Zealand
8 Source: IHS Economics, Airbus GMF 2017
13
BJI Consulting Ltd
3
Middle Class to almost double over the next 20 years
People in Middle Class* (million)
Forecast
6,000
4,950
5,000
4,000
3,900
3,000
2,900 3,624 Emerging countries
2,695
2,000
1,950
1,822
1,350 981
1,000 501 322 456 Developing countries
144 216
73
781 828 850 865 859 Advanced countries
0
1996e** 2006 2016 2026 2036
5,820 6,600 7,430 8,200 8,900 World Population (M.)

23% 30% 39% 47% 56% % of world population
Rounded total to nearest 50
9 * Households with yearly income between $20,000 and $150,000 at PPP in constant 2016 prices
** Estimate for 1996 split by region
Source: Oxford Economics, Airbus GMF
13
BJI Consulting Ltd
4
Almost 50% of world‟s private consumption to
come from emerging markets
World private consumption (trillion 2010 $US)
90 Forecast
80
70
60
46%
50 Emerging/Developing
countries
40
34%
30
20 23% Advanced countries 54%

66%
10 77%
0
1996 2000 2004 2008 2012 2016 2020 2024 2028 2032 2036
10 Source: IHS Economics, Airbus GMF
13
BJI Consulting Ltd
5
~60% of international tourists to be
transported by air in 2036
International tourist arrivals (million)
2,600
2,400
Forecast
>2.4bn tourists
2,200
2,000
1,800 Tourism by surface
1,600 (Road , Water, Rail)
1,400
1,200 >1.2bn tourists
1,000 Tourism by Air
800
600
400
200
0
2006 2011 2016 2021 2026 2031 2036
Share of tourists travelling by air
48% 51% 54% 57% 59% 61% 62%
11 Source: UNWTO, Sabre GDD, Airbus GMF
13
BJI Consulting Ltd
6
Low Cost Carrier market penetration has increased
significantly since 2006
Low Cost Carrier seats offered on domestic and intra-regional flights (million)
Europe-CIS
North America
x2.6 38m
x1.2 25m
Asia-Pacific
Middle East
2006 2016 x4.8 >39m
2006 2016 x16.4 4m
2006 2016
Latin America Africa 2006 2016

x5.7 0.6m
x3.9 9m
2006 2016
2006 2016
12 Source: OAG – September of each year, Airbus GMF
13
BJI Consulting Ltd
7
~30% of the people from emerging countries
took a flight in 2016…
2016 trips per capita
10
Africa
Asia/Pacific
CIS
Europe
1 Latin America
United States, 2016
1.8 trips per capita Middle East
North America
Bubble size proportional to population
China, 2016
0.4 trips per capita
0.1
India, 2016
0.01
0 10 20 30 40 50 60 70 80 2016 real GDP per capita
(2010 $US thousands at Purchasing Pow er Parity)
13 Source: Sabre, IHS Economics, Airbus GMF 2017
13
BJI Consulting Ltd
8
… in 2036, it will be 83%
2036 trips per capita
10
Africa
Asia/Pacific
CIS
Europe
United States, 2036
1 Latin America
China, 2036 Middle East
North America
Bubble size proportional to population
India, 2036
0.1 0.4 trips per capita
0.01
0 10 20 30 40 50 60 70 80 2036 real GDP per capita
(2010 $US thousands at Purchasing Pow er Parity)
14 Sources: Sabre, IHS Economics, Airbus GMF 2017
13
BJI Consulting Ltd
9
Air travel has proved to be resilient to external
shocks
World annual traffic (trillion RPKs) Asian WTC Financial
Oil Crisis Oil Crisis Gulf Crisis Crisis Attack SARS Crisis
8
6 +60%
growth over the
last 10 years
x2
5 since 9/11
0
1966 1971 1976 1981 1986 1991 1996 2001 2006 2011 2016
15 RPK = Revenue Passenger Kilometre

Source: ICAO, Airbus GMF
14
BJI Consulting Ltd
0
Traffic doubles every 15 years
World annual traffic (trillion RPKs)

18 ICAO total traffic Airbus GMF 2017: 4.4% growth p.a.
16
14
x2
12
10
8 x2
6
4 x2
0
1976 1981 1986 1991 1996 2001 2006 2011 2016 2021 2026 2031 2036

Source: ICAO, Airbus GMF 2017
14
BJI Consulting Ltd
1
Asia-Pacific continues to grow in importance
Traffic by airline domicile (trillion RPKs) Share of 20- Share of

2016 year 2036
0 1 2 3 4 5 6 7 RPKs CAG RPKs
R
Asia-Pacific 2016 traffic 2017-2036 traffic 30% 5.6% 38%
Europe 26% 3.4% 21%
North America 22% 2.6% 16%
Middle East 10% 6.1% 13%
Latin America 5% 4.5% 5%
CIS 4% 4.0% 4%
Africa 3% 5.3% 3%
17 Source: Airbus GMF 2017
14
BJI Consulting Ltd
2
Domestic Chinese traffic to become number one
Annual traffic per leg flow
Domestic PRC x3.6

Domestic USA x1.5
Western Europe - USA x1.8
Intra-Western Europe x1.6
Western Europe - Middle East x2.5
Domestic Asia Emerging x3.7
Middle East - USA x4.5
Indian Subcontinent - Middle East x3.4
Domestic India x5.4
PRC - USA x3.6 2016
Asia Emerging - Middle East x3.4 2036
Asia Emerging - PRC x3.8
Western Europe - PRC x2.2
Central Europe - Western Europe x2.6
Western Europe - South America x2.0
Asia Developped - Asia Emerging x2.5
Asia Developped - PRC x3.0
Domestic Brazil x2.6
Intra-Middle East x3.1
South America - USA x2.3
0.0 0.5 1.0 1.5 2.0
Trillions RPKs

Source: ICAO, Airbus GMF 2017
14
BJI Consulting Ltd
3
Trend towards densification, especially for Low
Cost Carriers
LCCs average single-aisle aircraft capacity per flight
170
165
156 160
155
150
143
140
130
120
110
100
2006 2011 2016 2006 2011 2016
19 Note: Aircraft capacity above 100 seatsand below 210 seats

Source: OAG – September of each year, Airbus GMF
14
BJI Consulting Ltd
4
A320 Family cabin enabler can raise A320 Family
seat counts by up to 10%
Slim-line Space-Flex Smart-Lav New doors rating Airbus

seats New rear New Increased exit limit Cabin-Flex
galley lavatory A321neo new door
configuration design configuration
A319 156  160 seats A320 180  189 seats A321 220  240 seats
20
14
BJI Consulting Ltd
5
A320 deliveries above 180 seats
60%
(% total deliveries)
Densification
50% trend
40%
Airlines are
choosing cabin
30%
enablers to
increase seat
20% count beyond 180
seats
10%
0%
2014 2015 2016 2017 2018
Source: Airbus
21
14
BJI Consulting Ltd
6
A320 Family deliveries
A319 A320 A321
100%
13% 16% 18% 21%
31%
Upsizing
80% 37%
41%
The single-aisle
60%
market continues
74% to move towards
73%
40% 73% 71%
higher capacity
62%
57%
aircraft
59%
20%
0% 13% 11%
8% 8% 7% 5% 1%
2010 2011 2012 2013 2014 2015 2016 Source: Airbus, End December
2016, includes NEO
22
14
BJI Consulting Ltd
7
In 2015, an aircraft generates 50% more RPKs than in
1995
1995
9,800 = 7.6 160 68%
pax a/c above 100 seats hours/day seats/flight
load factor
2015
18,000 = 8.6 172 80%
pax a/c above 100 seats hours/day seats/flight
load factor
Yearly RPK per a/c
1 2015 = 1.5x 1 1995

Source: ICAO, OAG, Ascend, Airbus
14
BJI Consulting Ltd
8
Emerging economies‟ discretionary spending will
double in just 10 years
Emerging economies* spending on recreational good and services** (2010 $US, PPP)
2025: $13.2 trillion

2015: $8.0 trillion
38% $3.1 46% $6.1

trillion trillion
Source: Oxford Economics, Airbus GMF 2016
Emerging economies Rest of the world *Emerging + Developing economies
**Including restaurants and accommodation
14
BJI Consulting Ltd
9
There are currently 55 Aviation Mega-Cities…
2015 Aviation Mega-Cities
55 1M 90%+
Daily Passengers: of long-haul traffic
Aviation long-haul traffic to/ on routes
from/via Mega- to/from/via
Mega-cities Cities 55 cities
25%
of World
GDP
in 2015
• >50 000 daily long-haul passengers

Source: McKinsey, UNPD, Airbus GMF 2016
15
BJI Consulting Ltd
0
Routes between Aviation Mega-Cities have more premium
passengers
Percentage of premium passengers on routes types
16%
14%
12%
11% average
10%
8%
14%
6%
4% 9%
7%
2%
0%
Aviation Mega-City to Aviation Mega-City to Secondary City to
Aviation Mega-City Secondary City Secondary City
Cities with more than 10,000 daily passengers, Long-haul, flight Source: Sabre (September 2015 data),
distance >2,000nm, excl. domestic traffic Airbus GMF 2016
15
BJI Consulting Ltd
1
There will be 93 Aviation Mega-Cities by 2035
93 2.5M 95%+
Daily Passengers: of long-haul traffic
Aviation Long-Haul traffic on routes
to/ from/via Mega- to/from/via
Mega-cities Cities 93 cities
35%
of World
GDP
in 2035

Source: McKinsey, UNPD, Airbus GMF 2016
15
BJI Consulting Ltd
2
47 of 55 Aviation Mega-Cities main airports
are schedule-constrained
 IATA WSG lev el 1: airport

infrastructure is adequate
 IATA WSG lev el 2: airportswith
potential for congestion
 IATA WSG lev el 3: airports

where conditions make it
impossible to meet demand Source: IATA W SG database,
Airbus GMF 2016
15
BJI Consulting Ltd
3
So far………………
• Airline structure – issues – challenges
• Competitor – market research
• Your airline - changes
• Different business models
• Cost of production – productivity is key
• Ability to change & adapt – IT issues
• Speed of decision making
• LCC – hybrid – Legacy > cooperation between
• Alliances – differences – LCC alliances
• Operational vs retailing / marketing mindset
• Data – Digital – mobile
• CEM – personalization – reality of consistent delivery
15
BJI Consulting Ltd
4
The Airline Industry
14-17th November 2017 Singapore

So far………………
• Airline structure – issues – challenges
• Competitor – market research
• Your airline - changes
• Different business models
• Cost of production – productivity is key
• Ability to change & adapt – IT issues
• Speed of decision making
• LCC – hybrid – Legacy > cooperation between
• Alliances – differences – LCC alliances
• Operational vs retailing / marketing mindset
• Data – Digital – mobile
• CEM – personalization – reality of consistent delivery
15
BJI Consulting Ltd
6
Today
• Final Prepartion Competitor presentations.

• Presentations….10 mins each…
• Revenue Management
• Fleet Planning
• Marketing
• Team exercise briefing & initial team discussion
• Evening reading – Business case AF/KL/DL
15
BJI Consulting Ltd
7
Module 4
Revenue Management
15
BJI Consulting Ltd
8
Group Discussion
• What is the purpose of revenue management?
• How do you think it will change?
15
BJI Consulting Ltd
9
Some background
• 1970’s – basic booking management
• 1980’s – 26 selling classes , overbooking
• 1990’s- Revenue management : point of sale control
• 2000+ - Pricing & revenue management
• Introduction of Origin & Destination systems ( O nd D)
• Impact of LCC pricing philosophy on ‘legacy’ airlines
• Impact of ancilliary revenue
• Impact of CEM lifetime value vs flight optimization
16
BJI Consulting Ltd
0
Role of Revenue Management
• Revenue management – selling the right product, to the right
customer, at the right time, for the right price
 Has a significant impact on airline profitability
• Yield management – managing inventory so as to maximize

revenue on each flight
 Match demand with supply by maximizing the seat/fare mix
and controlling overbooking levels
16
BJI Consulting Ltd
1
Airline seats are a perishable product
16
162 BJI Consulting Ltd
2
Revenue management underlying philosophy
• Micro economic theory:

– For every price (and applicable conditions) there exists a
quantity demanded…
• The economic justification:
– Some people willing to pay more than the price offered
(unrealized revenue)
– Some people willing to buy more if price is lower
(unrealized revenue)
16
BJI Consulting Ltd
3
Revenue management/yield management
• Revenue management needed to implement a differential pricing
structure for a product or service
• Business travellers – less price sensitive

– Book close to departure
– Want flexibility
– Travel mid-week
• Leisure travellers – more price sensitive
– Book in advance
– Travel over the weekend
• Airline offers multiple fare categories for seats in the aircraft
16
BJI Consulting Ltd
4
Elasticity =
% change in quantity demanded
% change in price
16
BJI Consulting Ltd
5
Differential pricing & ancilliary revenues
16
BJI Consulting Ltd
6
Airline revenue management
Therefore: introduce various price levels

J
Multiple Y
Unrealized revenue potential
price
offered B
Quantity demanded
16
BJI Consulting Ltd
7
While a cut in price will increase demand, it can also
cause dilution among passengers who would have
bought higher fares
Existing traffic
Existing
fare level Traffic from
new market
Lost revenue segment
New fare
level
Gained
Revenue
Journeys made
16
BJI Consulting Ltd
8
Six typical groups and fares are as follows:
• One-way business class fares

• Fully flexible fares
• Unrestricted, discounted, one-way, walk up fares
• Restricted, deep discounted, one-way fares
• Discounted return trip fares, with minimum Saturday stay
• Restricted, deeply discounted, tactical sell-off, return trip
fares
16
9
Differential pricing strategy
17
0
Re vi s e d pr i c i ng/produc ts
• Tailored fares and products
for the corpora te customer
• Fares distributed through the
TMC‟s GDS systems
• Fares available online through
all se lf booking tools
• Fast track for Flexi fare s &
easyJet p lus at more than 35
airports
£ growth
£ growth
Inclusive Ticket Gro wth Flexi Ticket Gro wth
56
17
BJI Consulting Ltd
1
Factors influencing demand
• Seasonal demand for air travel can vary. Three distinct
periods:
– Peak season
– Off-peak season
– Shoulder seasons (spring and fall)
• Holidays and special events e.g. Olympics, World Cup , F1
• Time of day and day of week demand patterns
• Economic conditions in different markets
• Impacts of own and competitor schedules
• Cancellations and no-shows
• Price
17
BJI Consulting Ltd
2
Seasonal variations in passenger demand
Demand exceeds
capacity
(Business is lost)
Maximum available capacity
Demand exceeds
optimum capacity
(Service quality declines)
Optimal capacity utilization

(Demand and capacity are balanced)
Excess capacity
Low utilization (Wasted
(May send bad signals) resources)
Peak Off-peak Shoulder
17
3
RM challenges
• Loss of revenue due to passengers who no show or cancel late
– SPOILAGE. Application of overbooking profiles
• Discounted fare customers turned away but flight departs

with empty seats – SPOILAGE. Revenue forecasting needs
improving and re-optimization of flights
• Late high yielding passengers turned way because too many

lower yielding passengers accepted. – SPILL. Needs better
high yield passenger forecasting
• Economy passengers turned away, flight departs with empty

business class seats – UPGRADE opportunity – impact of
mobile direct marketing
17
BJI Consulting Ltd
4
Origin/destination based revenue management
• The key objective of revenue is:
– Determine the correct economic value of a passenger
itinerary on the airline’s route network such that a decision
can be made whether or not to allocate a seat to any
specific passenger booking request
– Airlines have begun to migrate to an origin-destination-

based seat inventory control method (full itinerary rather
route sectors: if you sell all seats on short haul sectors,
then deny long haul connecting passenger)
– Think of revenue management as the ‘trading floor’ of the

airline
17
BJI Consulting Ltd
5
Revenue management requires:
• Historical data to develop booking trends

• Advance booking information: indication of future demand
• Control mechanism; people, equipment, process
– Qualified/experienced route controllers
– Adequate revenue management system/software
– Efficient process for decision, implementation,
communication
17
BJI Consulting Ltd
6
Revenue management process
17
BJI Consulting Ltd
7
Benefits of revenue management
• Improved seat utilization
– Optimize capacity while minimizing denied boardings
– Higher price earned on high demand seats
– Stimulated demand on a controlled basis for remaining
empty seats…results in
– Overall increase in revenue per ASK
• More responsive to market conditions
– Each flight managed individually
– Price to maximum market will bear
– Respond to competitive offering while minimizing revenue
loss
– Promote specific product (day of week, time of day, time
of year) BJI Consulting Ltd
17
8
Benefits of revenue management
• Improved commercial information
– Source of advantage booking and forecasting information
– Source of performance benchmarks
– Tool to monitor impact of commercial initiatives
• Network management
– Maximize the value of network flow
17
BJI Consulting Ltd
9
Module 5
Fleet Planning
18
BJI Consulting Ltd
0
Group discussion
• What criteria would you use to choose an aircraft?
18
BJI Consulting Ltd
1
„Managing productive capacity to meet demand‟
• Replacement of existing capacity

• Capacity growth – current network and new
destinations
Linked directly to the company’s business plan reflecting :
• Changes in the marketplace
• Changes in corporate priorities / business positioning
• Strategic commitment
18
BJI Consulting Ltd
2
Key questions for purchase decision
• Payload range the company looking for
• Fuel consumption – are figures realistic?
• Seating capacity options – cabins and seat types
• Belly hold volume / structural limits for baggage / freight
• Are there any airport / engineering infrastructure issues?
• Aircraft ‘field’ performance – ‘hot and high’
• Number of aircraft needed and delivery timescales
 The above will lead to probably shortlisting of 2/3 aircraft
18
BJI Consulting Ltd
3
Evaluation - Commercial
• Manufacturers give multiple options for same aircraft
• Seating layouts , galleys , toilets , interior dimensions, aisle
width , doors and exits , garment stowage
• When purchasing for a ‘group’ of airlines benefits of common
specifications on certain items
• Example given for galley area , toilets , cockpit windows and
cockpit seating
18
BJI Consulting Ltd
4
18
BJI Consulting Ltd
5
18
BJI Consulting Ltd
6
18
BJI Consulting Ltd
7
Evaluation - Technical
• Performance – weight, take-off performance , guarantees
• Design – certification , maintanance, commonality
• Product support – training, documentation, spares , on-site
• Technical analysis – structures / flight controls / mechanical
systems / avionics / cabin wifi / propulsion
• Powerplant analysis – maintenance & productivity
• Engine ‘Total care Packages’ increasingly common
• Specified engine makes for specific aircraft types
18
BJI Consulting Ltd
8
Evaluation - Economic
 Revenue factors  Cost factors
• traffic flows • fuel consumption levels
• aircraft type capacity, speed • maintenance
• fleet size & mix • landing/en-route fees
• load factors • crew costs
• schedule and a/c utilization • ground handling spec’s
• insurance
18
BJI Consulting Ltd
9
Evaluation & Choice
• Revenue potential vs Operational/Financial cost
• Return on investment analysis
• Combination of Commercial, Technical and Economic

evaluation to make choice
19
BJI Consulting Ltd
0
Aircraft Prices & Types
 List Prices vs. Actual Prices
• Timing
• Discounts given for
• Volume
• Reputation/credit
• Growth potential
• Success of a given model
 Widebodies
 Narrow bodies
 Regional Jets
 Turboprops
19
BJI Consulting Ltd
1
Regional/Small Jets
• Distinction between narrow body and regional jet now overlap?
• Turboprops today very different from a decade ago
• Embraer: E135/145 family
• Embraer: E170/E175/E190 family
• Bombardier: CRJ-200/-700/-900 family
• Bombardier – C Series jets
• MTurboprops: Bombardier Q400s, ATR 72-500s
• China (AVIC), Japan (Mitsubishi), Russia (Sukhoi)
19
BJI Consulting Ltd
2
19
BJI Consulting Ltd
3
Narrowbodies – single isle
• A320 family – (A318,A319, A320,A321)
• B737 family – (-600,-700,-800-900,maxjet)
• B757
19
BJI Consulting Ltd
4
Medium size - Longhaul
• B787- Dreamliner
• A350
19
BJI Consulting Ltd
5
Medium size - Longhaul
• A330 and A340 and B777
19
BJI Consulting Ltd
6
Large Longhaul
• A380
• B747-400 and -800
19
BJI Consulting Ltd
7
Buy or Lease?
• Each carries different tax implications

• Buying planes means borrowing money and making
fixed interest payments to lenders (banks or bond
holders)
• Leasing involves fixed monthly payments to lessors
• Leasing can offer more flexibility if you need to quickly
add or subtract capacity
• Operating vs. financial lease ( Dry or Wet)
• Sale-Leasebacks; Ex-Im Financing
• Leasing increasing as a percentage
19
BJI Consulting Ltd
8
Leasing
• Recent growth in leasing as airlines find it harder to purchase outright due
low profit margins.
19
BJI Consulting Ltd
9
SQ Fleet Development
20
BJI Consulting Ltd
0
Module 6
Marketing
20
1
BJI Consulting Ltd
Group discussion
• What is ‘marketing and how is it changing’ ?
20
BJI Consulting Ltd
2
What is marketing?
“The management process responsible for identifying,

anticipating and satisfying customer requirement profitably”
Institute of Marketing
20
BJI Consulting Ltd
3
It is not the strongest of the species that
survive, nor the most intelligent, but the one
most responsive to change. Charles Darwin
20
BJI Consulting Ltd Course Name
4
Marketing is a dialogue over time with
 "
specific groups of customers whose

needs you understand in depth and
for whom you develop an offer with a
different advantage over the offer of
your competitors." BuildingBrands Limited
20
BJI Consulting Ltd Course Name
5
What is marketing?
 A SCIENCE dealing with strategy , research , analysis,

segmentation , data and information
 An ART dealing with branding , design, advertizing, promotion
and communication
 A HUMANITIES subject dealing with social and ethical issues
 SALES = turning Marketing into revenue
20
BJI Consulting Ltd
6
The Triangle of Marketing
CUSTOMER
Technological Socio-economic
and regulatory environment
environment
COMPANY COMPETITION
The key is to optimize the relationship and profit
20
BJI Consulting Ltd 207 Course Name
7
The 6 integrated steps of the marketing
process
Develop and
implement plans
Objectives
and strategies
SWOT
Segment
your market Review
Gather
market and improve
information
20
BJI Consulting Ltd
8
The marketing mix
• Once the market has been assessed and objectives set, the
marketing mix is created and modified
• The basic marketing mix: the four P’s
Product
Place
Promotion
Price
20
9
BJI Consulting Ltd
Levels of Product – Air Transport
Augmented product
Actual product Customer

care service
Aircraft On board
type Core product meals &
Punctuality drinks
Transportation Frequency
Configuration Seat
pitch
FFP Safety
Lounges
Digital & mobile
applications
21
Course Name
0
Customer Retention – the prime objective
21
BJI Consulting Ltd
1
Some product options
 On the Ground
 Check in options (online, airport kiosks, mobile phone)
 Bag checks? Free of charge? Weight limits?
 Priority check in and boarding / arrivals
 Limousine pickup
 Lounge access and amenities
 Flight status updates / gate guidance
 Transfer desks
 Airport amenities like shopping, ease of use
21
BJI Consulting Ltd
2
Product options
 In the Air
 In-flight meals
 In-flight entertainment
 Seats: pitch, width, material, comfort, recline
 Other In-flight amenities (internet, wireless,
mobile telephony, duty-free shopping, amenity
kits, power ports)
 Type of aircraft
21
BJI Consulting Ltd
3
Pricing – different ways of setting….
• Cost based
• Demand based
• Service based
• Bundled / unbundled
21
BJI Consulting Ltd
4
Ancilliary Growing in Size
21
Source: Amadeus Guide Ancillary Revenue by IdeaWorks BJI Consulting Ltd
5
Types of Fees
21
BJI Consulting Ltd
6
Types of Fees
21
BJI Consulting Ltd
7
Commoditization problem starting to be addressed
2013 ancillaries and operating profits, % revenues
35%
Allegiant
30%
25% Ryanair
Ancillaries as % revenues
20% Easyjet
Aer Lingus Air Asia
Flybe 15% United Alaska
Qantas JetBlue
10%
Korean Frontier Delta
5%
Hawaiian
PIA Spicejet SAA BA JAL
0%
-20% -15% -10% -5% 0% 5% 10% 15% 20%
Operating profits as % revenues
Source: IdeaWorks, Airline Analyst, IATA

21
BJI Consulting Ltd
9
Place - Airline Distribution Channels
Airline
Indirect channels
Airline
PSS
website /
mobile GDS
Call GSA
CTO Centre
Travel Tour
operator Specialist
agent
Target Market Segments

22
220 BJI Consulting Course
Ltd Name
0
Place: Distribution Chains – „traditional‟
airline
GDS
A common distribution chain; airlines Agency

are currently trying to reduce the cost
of intermediaries and upgrade
technology to allow more effective Traveller
selling
22
BJI Consulting Ltd
1
Lufthansa / IAG redirecting commercial strategy
• “Airlines differentiate booking

channels - Modular fare
packages and new customised
offers “
• “A per ticket earnings increase
to be reinforced by direct
booking methods - Development
of a new booking channel to
form direct link with sales
partners”
22
BJI Consulting Ltd
2
On-line Travel Agent - OTA
22
3
And we see a proliferation of new models to help consumers and airlines
Established Models: Emerging Models:

OTA, Travel Search Social Media, Wireless
22
224 BJI Consulting Course
Ltd Name
4
E-Commerce is…
… a type of industry where buying and selling

of product or service is conducted over
electronic systems such as the Internet and
other computer networks

Airlines were the pioneers of e-Commerce

IATA NDC project – improving distribution
It could have rather a big impact on what we have all been doing in selling
airline seats for the past 50 years…
But lets relax and think about something else first
MUSIC
22
BJI Consulting Ltd
7
Or more particularly – „music distribution‟
100 years of evolution of the phonograph
They built very successful product lines:-

• Record players
• Cassette players
• CD players
Companies were working on all these

exciting products - until 2000 ….
22
BJI Consulting Ltd
8
When along came the internet…
22
BJI Consulting Ltd
9
A musical revolution took place
music today
The internet had eliminated

the need for „Indirect
obsolescent products
Content‟
23
BJI Consulting Ltd
0
But back to indirect sales of air travel
• These guys seem to be doing a good online job

• So indirect distribution must be evolving very successfully?
23
BJI Consulting Ltd
1
Airline Indirect Distribution – actually a mixed story
• 35,000 agents, 420 carriers using essentially 6 GDSs
• IATA collecting $220 Billion from 125 BSPs with 99.96% reliability
• Despite sales based upon the ‘green screens’ invented in 1987
• But how can green screens show airline products?
23
BJI Consulting Ltd
2
From Flight Distribution…
Travel agents
have access to
limited and
commoditized
airline information

… to Air Retailing
Travel agents
need to have
access to the
entirety of an
airline‟s product
offering as
available in airline
web sites

Closing the gap…
• There is a gap between direct (airline websites) and

indirect (GDS/travel agent) channels.
• Airlines use two different formats

• Internet technologies on their websites - offering
travel consumers an online experience similar in
content and display to what they can find on retail
websites
• Less flexible pre-Internet message protocols

(EDIFACT and TELETYPE) when selling through
the indirect channel (GDS/travel agent) which do
not provide the same level of flexibility for rich
content, personalization and customization
What is NDC?
NDC is a travel industry-supported program (NDC

Program) launched by IATA for the development and
market adoption of a new, XML-based data transmission
standard (NDC Standard).
The NDC Standard will enhance the capability of
communications between airlines and travel agents and
will be open to any third party, intermediary, IT provider or
non-IATA member, to implement and use.
23
BJI Consulting Ltd
6
Flight Distribution Today
Fares
3rd party
Schedule Global Travel

Airline
3rd party Distribution Agents
Travelers
Systems
Availability
Airline (TMC | OTA |
Independent) (Business |
Airline Leisure)
e-commerce
engine
Airline
Current distribution capability throttles innovation

23
BJI Consulting Ltd
7
Air Retailing Tomorrow
Content
Aggregators Travel
NDC
Agents
(GDS | New Travelers
Airline Offer Entrants)
Management (TMC | OTA |
Independent) (Business |
System
Leisure)
NDC
Airline
Industry standard brings lower cost, innovation,

ease-of-comparison and interoperability
23
BJI Consulting Ltd
8
Benefits from NDC
Airline Product differentiation

Airline • Marketing the richness and uniqueness of
airline products
• Marketing personalized offers
Access to full and rich Content

Agent • Compare flight products based on schedule,
price AND value
• Work with real-time product and fare data
Transparent shopping
Customer • Deliver the right products at the right prices
• Offer each traveler the opportunity to shop
based on what they value – be it anonymous
23
or personalized BJI Consulting Ltd
9
1.6 0
1.4 0 BA.com has t he highest rate of

Indexed Visits – Selected websites in travel
website t raffic growt h of any

major UK airline website o r O TA
1.20 since January 2012
1.0 0
0.80
0.60
Rolling 12-month average visits to websites

0.40
Jun-12
Jun-13
Dec-11
Mar-12
Mar-13
Sep-12
Dec-12
Sep-13
Brit ish Airways Lastminut e.co m
Expedia easyJet Ryanair
Source: Experian Hitwise - Travel Indust ry, mont hly t otal visits
24
BJI Consulting Ltd
0
Rolling 12 month revenue performance
Global Point of Sale
1.4 0
1.3 0 • 7% of UK travelling
companies are in our current
programme
Indexed Revenue
1.20
1.10
• SME is the fastest growing
corporate channel and
1.0 0 accounts for £2.8 billion of
our revenue (£1 billion of
which is in the programme)
0 .9 0
0 .8 0
Jan-12
May-12
Dec-11
Feb-12
Mar-12
Apr-12
Jun-12
Jul-12
Aug-12
Oct-12
Dec-12
Jan-13
Feb-13
Mar-13
Apr-13
May-13
Jun-13
Jul-13
Aug-13
Sep-12
Nov-12
Sep-13
Uplift Month
Index O nBusiness Tracked Corporates
24
BJI Consulting Ltd
1
“Multi c h a nnel” s a les a p p r o a c h
• Contracted relationships
• TMC supported (Online/Offline)
• Dedicated stakeholder management
Corpora te • Savings / ROI value proposition
Corporate spend
contra c ts • Management reporting

• Corporate discounts
Travel Management • Distribution channel

Company (TMC) • Middle market growth
• SME channel
Direct
• www.easyjet.com
Corporate accounts
54
24
BJI Consulting Ltd
2
Branding defined
‘A set of rational and emotional attributes that shape the perceptions and
attitudes of customers towards an organization and influence their purchase
decisions, loyalty and willingness to recommend’
24
5
BJI Consulting Ltd
Promotion
• AIDA – awareness , interest , desire , action !
• Above the line – TV , Radio , Billboards
• Below the line – sponsorship , product placement , direct mail

/ email
24
BJI Consulting Ltd
6
Elements of a brand
• Promise: what stakeholders can expect from you
What you say
• Personality: the style the brand adopts
How you say something
• Source: source of credibility, past experiences
Who says it
• Identity: name and visual mark (logo)
Physical representation of your brand
24
7
BJI Consulting Ltd
Brand promise – what you say
Always easier to define form the outside. At the end of the day, what the
brand stands for…
Safety Power Success
Known safe, powerful and luxury cars - not same promise.
24
8
BJI Consulting Ltd
Airline branding
• Consumers may look on branding as an important value
added aspect of products or services, as it often serves to
denote a certain attractive quality or characteristic
• From the perspective of brand owners (the airlines), branded
products or services also (usually) command higher prices or
less discounting
24
9
BJI Consulting Ltd
Market positioning
STRATEGIC ADVANTAGE
Uniqueness Perceived Low Cost Position
by the customer
STRATEGIC TARGET
Industry DIFFERENTIATION OVERALL COST

wide LEADERSHIP
Particular
Segment FOCUS
Only
Source: Porter Competitive Strategy
25
BJI Consulting Ltd
0
25
BJI Consulting Ltd
1
Relationship Marketing to Customer
Experience Management
• FFP aim to build relationship with customers of high revenue
potential
• Customer retention less expensive that customer acquisition
• FFP now developing into much more wide ranging set of
marketing relationships with customer and partners
• FFP data linkage to CEM data into one ‘data pool’
25
BJI Consulting Ltd
2
25
BJI Consulting Ltd
3
SOCIAL MEDIA AND MARKETING
25
BJI Consulting Ltd
4
Social Media : disruptive effects on „traditional‟
way of running „an airline‟
INCREASE YOUR
CREATE AN INTERACTIVE
DISCOVERABILITY (BY
CUSTOMER SERVICE
BUILD AWARENESS INCREASING EXPOSURE
CHANNEL FOR EXISTING
AND TRAFFIC TO YOUR
CUSTOMERS
WEBSITE
DEVELOP A BRAND
RESEARCH AND LEARN
IDENTITY AND INTERACT
ABOUT YOUR TARGET
WITH YOUR TARGET
MARKET
MARKET
DEFEND REPUTATION
AND ENCOURAGE
REACH NEW AUDIENCES
POSITIVE
CONVERSATIONS
25
BJI Consulting Ltd
5
Customer service interactions
BJI Consulting Ltd

256
Customer service interactions
BJI Consulting Ltd

257
25
BJI Consulting Ltd
8
Speed / instant communication
BJI Consulting Ltd

259
Communication Changes
3:07 pm A320 ditches in the

Hudson
3:22 pm First photo tweeted out

(left)
3:26 pm First photo from inside

“There’s a plane in the the plane on Twitter
Hudson. I’m on the
ferry going to pick the 3:30 pm First news reports, with
people up. Crazy!” photo from twitter
First tweeted photo 5:07 pm Official press release on

USAirways.com
26
BJI Consulting Ltd
0
And then we have the effect of mobile „smartphones‟ .........
Economist 2015 BJI Consulting Ltd

26
1
Mobile....breadth and depth
26
BJI Consulting Ltd
2
A part of life...............
26
BJI Consulting Ltd
3
The world is mobile......
Source: Amadeus
26
BJI Consulting Ltd
4
2.
De ma nd
„Mobile Host a t' Gatwick
Provides guida n ce a n d n ext step instructions to passen g ers during their d a y of travel
BJI Consulting Ltd

26
Touch Points │Data │Usage │ Benefits
26
BJI Consulting Course
Ltd Name
7
Know Me
All possible
customers Unique Known
Customers Customers
100 to
150m* 79 m 10 m
26
BJI Consulting Ltd
8
RMS a n d CRM developm e n t - E a s yj e t
Reven u e m a n a g e m e nt system Customer relationship m a n a g e m e nt

• Bespoke and proprietary revenue
• Custom er data at the heart of
management system
easyJet
• Demand based system which
• Leverage data, insight and
maximises the revenue from a flight
technology to personalise every
customer touch point
• Continuous d evelo p m e nt
Customer
profile
• Able to predict and duplicate decisions
made by pricing managers
Ch annel Tra vel
da ta history
• Assigning sales profile curves to each
individual flight
• Continuous dynamic price setting

Con ta ct
deta ils / Tra nsaction
history
• Yield management of allocated seating history
and bags
26
BJI Consulting Ltd
9
CEM across the business…..
Loyalty
Customer
E-commerce
Service
Personalization Operations
27
BJI Consulting Ltd
0
Mobile Delivery – the challenge…..
Content-appropriate
Content – tied to Personalized-based on

action preferences/persona
Timely – tied to
Content – opt in
action/event
Location – drives
content
27
BJI Consulting Ltd
1
The basis of airline competition has expanded over time
Qantas view
STRATEGY& TRANSFORMATION
Changing Nature of Airline Competition
Customer
Partnerships
Product • Insights
Operations • Global alliances • Technology enabled
• Seats • Joint ventures • Loyalty
• Aircraft • Lounges • Virtual airlines • Personalisation
• Airports • Entertainment
• Safety
More replicable Less replicable
While originally focused on physical assets, airlines today compete on a range of dimensions, including
operations, product, partnerships and increasingly customer capabilities
CEM issues / challenges
• Airlines primarily focusing on airline.com , mobile , kiosks,
airport , on-board and a few on call centres
• CEM challenges traditional silo structures
• Marketing / merchandizing driven or customer experience
driven?
• Loyalty Programs not sufficient on its own for CEM. How to
integrate customer ‘value’ into real time decision making?
• Including delivery partners in the CEM rollout eg airport
ground handlers
• Traditional Revenue Management optimization by flight vs
passenger lifetime value calculus
• Delivery of CEM at the passenger / staff interface
• Internal buy in to expediture vs return ‘A Leap of faith’
27
BJI Consulting Ltd
3
To maintain leadership……..
• Product innovation
• Service excellence at all points of interaction with the
customer
• Highly developed use of data analytics
• Competitor awareness
• Investment in new products
• Organisational flexibility, creativity and speed to market
27
BJI Consulting Ltd
4
Maintaining leadership……….
27
BJI Consulting Ltd
5
Maintaining leadership….
27
BJI Consulting Ltd
6
Maintaining leadership
27
BJI Consulting Ltd
7
Maintaining Leadership
27
BJI Consulting Ltd
8
Changes in the market structure , consumer
and technology
27
Source : Taneja BJI Consulting Ltd
9
Business Presentation
Briefing
28
BJI Consulting Ltd
0
Marketing Exercise - Presentation
Objectives of the exercise:

 Preparing a marketing plan presentation to a
senior team
 Understand key elements & priorities of the
marketing & customer experience
 To think and act creatively
 Work as a team !
28
BJI Consulting Ltd
1
This is a learning exercise
• How well you work as a team
• Ability to produce a clear, concise, impactful presentation
• Questioning and answering
• Timing – both in production and delivery
28
BJI Consulting Ltd
2
The Assignment
• Preparation > practice > deliver !
• 15/20 minute presentation using PowerPoint and any other
media/props/handouts/gifts etc. – present marketing plan for
Airline BJI
• Use the brief as a start point. You can add assumptions.
• Use some of the concepts we have discussed
• Think creatively – think outside the box
• Feel free to se some humor in your presentation
• Think about : advertising campaigns/distribution
channels/product air-ground/scheduled vs. low cost vs. full
service vs. hybrid / alliances – to compete or
cooperate/domestic versus int’l structure / disruptive
technology possibilities / CEM implications…and more !
• No right or wrong answer – looking for possibilities / change
28
BJI Consulting Ltd
3
Marketing plan helps guide strategy‟s action
plans
The plan helps the airline It also provides the airline
– Assess its environment – A disciplined market review
– Examine its options – A clear direction to its efforts
– Establish goals and – Ability to set budgets
objectives – Ability to allocate resources
– Formulate tactics – Ability to coordinate efforts
– Analyze performance – Ability to assign responsibility
– Take corrective action – A basis for monitoring
performance
28
BJI Consulting Ltd
4
The 6 integrated steps of the marketing
process
Develop and
implement plans
Objectives
and strategies
SWOT
Segment
your market Review
Gather
market and improve
information
28
BJI Consulting Ltd
5
The Marketing Plan – basic outline
• Vison & Mission of the airline – including name / brand

• Market overview
• SWOT analysis
• Assumptions
• Marketing objectives/strategies
• Forecast/budgets
28
BJI Consulting Ltd
6
You can get detailed……but think about timing and impact
Target Segment Ranking Objectives Strategy

Independent Holiday Travel 2 Achieve US$1.75m in launch year New modular holiday packages, enabling customers to
build specific packages of flight, hotel and related
activities
Step Element Actions Dates Accountability

Step One: Product Develop the product range Jan Holiday Travel Department
Launch in Price Finalize pricing approach Jan Holiday Travel with input from
March Revenue Management, local
marketing teams
Promotion Implement PR ,radio, social media Mar Marketing Communications
campaign
Distribution Upmarket agents / travel Mar/May Sales Department
websites /airline web
Alliance Communicate results of campaign Jun Head office marketing
to alliance partners
Step Two Product Negotiate special offers Jun Holiday Travel Department
Off peak Price Finalize special off peak pricing Jul Holiday travel with revenue
Sales management , marketing
Promotion
Promotion Joint promotions , reader offers Aug Marketing Communications
Distribution Web & travel agent Aug Sales department

Things to look for
• Does the presentation have impact?
• Is there a flow to the presentation?
• Are ideas/objectives well explained?
• Use of images/layout
• Use of the team members
• Is it convincing?
• How well did the group deal with questions?
• Did they keep your interest and attention at all times?
28
BJI Consulting Ltd
8
Yesterday
• Competitor awareness…..
• Traffic Demand / forecasting
• Fleet planning
• Marketing
• Marketing plan introduction
• Presentation briefing – initial preparation
28
BJI Consulting Ltd
9
Today
• Alliances
• Biz models / business case examples
• AF/KL/DL business case group feedback / discussion
• Marketing plan preparation
29
BJI Consulting Ltd
0
Module 7
Alliances
29
BJI Consulting Ltd
1
Group discussion
• Why do airlines form / join Alliances?
29
BJI Consulting Ltd
2
What is an Alliance?
“A strategic alliance is a long term partnership of two or more

firms which attempt to enhance advantages collectively vis-a-vis
their competitors by sharing scarce resources including brand
assets and market access capability, enhancing service quality,
and thereby improving profitability” (IATA)...
29
BJI Consulting Ltd
3
Why Airline Alliances?
29
BJI Consulting Ltd
4
Scope of Alliances
29
BJI Consulting Ltd
5
What do airlines want from alliances
29
Source : Air Transport Group Cranfield University BJI Consulting Ltd
6
The most productive forms of relationship
29
BJI Consulting Ltd
7
Effects of liberalisation and globalisation
Level of integration
on development of airline partnerships
Equity
stakes and
take-overs
Alliances
Anti trust
immunity
Code share
Interlining
1980s Early 1990sLate1990s 2015
29
BJI Consulting Ltd
8
Different forms of relationship
HIGH Merger
Consolidation
Profit Share
Commitment Anti-trust
Benefit JV
Potential
Franchise
Cost
Global
Regulatory Alliance
Codeshare
FFP
n
Interline
I
LOW Level of cooperation HIGH

Sharing of control?
29
BJI Consulting Ltd
9
30
BJI Consulting Ltd
0
Types of Cooperation
 COMMERCIAL  COST SAVING
• Frequent Flyer Programs • Facility sharing eg lounges
• Code sharing • Joint purchasing
• Joint marketing / sales • Reciprocal ground
• Joint sales promotions handling/GSA
• Schedule integration • Joint product / IT development
• Connectivity • Purchasing
• Benefit/risk sharing
30
BJI Consulting Ltd
1
Potential phases of development:
Phase one – revenue Phase two – cost Phase three – joint

generation reduction venture orientated
Code shares Common ground handling Franchising

Joint FFPs Joint maintenance Joint product
Network co-ordination Joint sales in third development
Joint sales countries Sharing of aircraft and
Shared lounges Joint call centres crews
Alliance logo Common IT platform Single operating company
Joint purchasing -- Passengers
Fleet harmonisation -- Cargo
Separate airline brands Separate airline brands Single alliance brand
Entry and exit relatively Exit more difficult but Exit is very difficult or
easy possible impossible
Source: Doganis “The Airline Business in the 21st Century”

30
BJI Consulting Ltd
2
Network and partnerships are important drivers for revenue
quality
Passenger network and partner overview for all airlines
Largest Airline Group in Europe
Largest Transatlantic Joint Venture First JV for Japan-Europe and Europe-China
Intra-
European
46.1%
North (-0.5pts.) Asia
America Pacific
22.8% 17.8%
(+1.4pts.) (+0.2pts)
Mid-East
3.8%
(-0.3pts.)
Africa
South 3.7%
America (-0.3pts.)
5.8%
(-0.5pts.)
Traffic revenue shares Passenger Airline Group as of 31 December 2014 (comparison to previous year)
Page BJI Consulting Ltd

303
30
BJI Consulting Ltd
4
Codeshares to spread network……………
30
BJI Consulting Ltd
5
Spreading the network……
30
BJI Consulting Ltd
6
30
BJI Consulting Ltd
7
30
BJI Consulting Ltd
8
30
BJI Consulting Ltd
9
New Destinations……….
31
BJI Consulting Ltd
0
Multi-Hub Strategy………………….
31
BJI Consulting Ltd
1
Long-haul: sustainable mid-cycle margin, growth ambition
• 4 new routes added in last 12 months

• Further North Atlantic, Asia and Middle East
Grow destination breadth opportunities in scope
• 25 787s fully deployable from 2017 for
medium size route development
• A380 now on 6 North Atlantic gateways

Strengthen network depth on • „Super Hi-J‟ on LHR JFK
key markets • Fleet mix offers multiple up-gauge
opportunities
• Asian hub and JV with Qatar Airways

Leverage alliance • Codeshare with China Eastern
partnerships
• Potential LATAM joint venture
British Airways Network

31
Growing Qantas International Efficiently
with Partnerships
Three cornerstone alliances in place
Established partnership with

Emirates delivering synergies
2 x daily Australia to London Qantas
services supplemented by unrivalled
Qantas International, Qantas Domestic and Emirates network offering to Europe,
Loyalty benefiting from airline partnerships Middle East, North Africa.
• FY16 codeshare partner uplifts (Qantas

passengers on partners) have increased by
69% to >2.3m since FY131 New alliances with the
right long-term partners
• FY16 codeshare uplifts (partner airline
passengers on Qantas) have increased by
182% to >900,000 since FY132 Enabling growth for both brands on AU-
China market, benefiting from influx of
• Revenue as a result of our members earning inbound Chinese tourists to Australia
QFF points by flying on partner airlines has
double since FY13
• Revenue as a result of partner‟s members

redeeming loyalty points on Qantas flights has
increased by over 50% since FY13
Growing Trans-Pacific with world‟s
largest airline, brand and distribution
strength on both sides of AU-US market3
AIRLINE ALLIANCES ENHANCING ROIC AT QANTAS INTERNATIONAL AND QANTAS DOMESTIC

31
BJI Consulting Ltd
3 26
1. FY16 total uplifts on all codeshare partner compared to FY13. 2. Includes Domestic and International Qantas operations. 3. American Airlines partnership is subject to regulatory approval.
Other examples
• Etihad Airways Partners concept
• Etihad / Lufthansa???
• Value Alliance / U Fly…. – and other possible LCC groupings
• Skyteam Connect Program – building relationships with possibly LCC / Hybrids
• Ability to have commercial relationships outside or core Alliance membership

is increasing
• Focus is now very much on driving ‘value’ not so much about many new
members
31
BJI Consulting Ltd
4
„Alliances‟ – cooperation across different business models
• Bloomberg August 11, 2015 — 9:59 AM BST
• Ryanair Holdings Plc said it’s in talks about providing feeder traffic to IAG
SA, Virgin Atlantic Airways Ltd., Norwegian Air Shuttle ASA and Portugal’s
TAP in a move that would mark a major shift from its previous strategy.
• Ryanair’s short-haul services would link up with long-haul flights
operating from the hubs of partner airlines, spokesman Robin Kiely said
Tuesday, confirming comments made by Chief Executive Officer Michael
O’Leary to Reuters in Dublin Monday.
31
BJI Consulting Ltd
5
Alliance challenges
• Lack of Alliance experience

• Cultural mismatch
• Misunderstood operating procedures
• Lack of financial commitment – cost cutting vs investment?
• Slow results or payback – yield dilution SH vs LH?
• Lack of shared benefits
• Communication
31
BJI Consulting Ltd
6
A Cultural Audit Company B
Company A
Quick/punctual Time orientation Ill defined
Individual Individualism Team
Direct Communication Diplomatic
Certain Information Ambiguous
Hierarchical Organizational structure & Culture Collaborative
Harmonious TU/Labour relations Conflictive
Familiar Technology Unfamiliar
Marketing Management style „Engineering‟
Adversarial Business/Government Relations Harmonized
Rapid Organizational degree of change Slow Kaplan

Alliance success…
• Work towards joint goals
• Need to be open and flexible and think long term
• Alliances are about relationships and people
• Have skilled Alliance managers that contribute towards
profitability
• Coordination of work / Joint Planning
• Ensuring „ balance‟ is Alliance work
31
BJI Consulting Ltd
8
Module 8
Airline Business Models
31
BJI Consulting Ltd
9
Group Discussion
• Is the ‘Hybrid’ Business model the answer to everything?
32
BJI Consulting Ltd
0
Case Studies
A selection of real life up to date airline business examples:
 Evolving business models
 Digital and mobile
 Worldwide social and economic shifts
 Data > to improve customer experience & sales
 Restructuring challenges
32
BJI Consulting Ltd
1
„Legacy‟ carriers
• Hub and spoke networks

• Middle East ‘ super connectors’
• Full service model evolving to mixture of models in one airline group
• Growth of ‘hybrids’
• Transformation challenges
• Increasing consolidation of back office functions
• Drive for cost as well as revenue benefits
• Data usage / personalization
32
BJI Consulting Ltd
2
Source : SQ Business Review
Key success factors for Low Cost Airline development
 Deregulation & open skies ?  Opportunity to simplify processes?

 Lazy legacy carriers and  Technology enabled airlines and
opportunities for significant cost customers ?
savings ?
 Critical mass of customers with  Retail opportunities that can be sold
disposable income at both origin and via the website ?
destination ?  VRF and holiday markets (plus
 Price stimulation possible ? business) to give sufficient density ?
 Disgruntled point-to-point  Economies of scale with route

passengers ? centres possible, not one-route
wonders ?
 Secondary airports keen for traffic?
 Opportunities to boost aircraft  Poor surface competition ?
utilisation ?
32
BJI Consulting Ltd
4
• Single Fleet Type
• Cabin Service
– Single class
– Higher seat density (+20 seats)
– No catering/pay-for catering
• Operations
– Point-to-Point
– Shorter Stage Lengths (500 miles)
– High Load Factors ( 75-90%)
– No Interlining Service or Baggage
Transfer
– Fast turn times (20-25mins.)
– High aircraft utilization (12 hrs/day)
32
BJI Consulting Ltd
5
• Station Operations
– Second Tier Airports preferred
– No seat assignments
– Fast Turn Times (20-25mins.)
• Distribution
– High direct booking & e-Ticketing component
– Simplified pricing, no refunding
• Outsourced maintenance
• Highly efficient crew contracts
32
BJI Consulting Ltd
6
Convergence of Business Models
Source: Adapted from Low cost carries: How are they changing the market dynamics of the US airline
32
BJI Consulting Ltd
industry? Erfan Chowdhury, Carlton University, Ottowa 7
Increasing revenues Reducing costs
Strong revenue backbone Efficient and modern fleet
One single LH Group Successful phase-in of

revenue management C Series, A320neo and A350
70% of long-haul -20% cash operating costs

revenues covered
by commercial JVs 40 new aircraft in 2017
Premium positioning & new products Modernizing labor cost structures
>180 A/C with New schemes for

broadband internet all employees
Innovation & digitalization Agreement in principle

reached with VC
500m EUR Planning reliability due to
dedicated funds industrial peace until 2022
Source : LH Business Review 2017

BJI Consulting Ltd Page 328
Eurowings within LH Group Eurowings Positioning within the LCC Segment
Eurowings leverages
Ultra Traditional Modern
LH Group advantages…
Low Cost Low Cost Low Cost
• LH status & corporate
customer base  Single class,  Point-to-point  Point-to-point and
• Frequent flyer program maximized seat network
density  High frequency
• Joint procurement  Leisure travelers and
 Aggressive seat  Leisure travelers and price sensitive
• Fleet management pricing, with strong price sensitive business travelers
• Codesharing focus on ancillaries business travelers  Premium cabin,
• Lounge access  Focus on leisure compromised seat
 Mainly primary und
travelers density
… while maintaining secondary airports
autonomy  Mainly secondary and  Frequently primary
tertiary airports airports
• P2P focus
• Unbundled fares
• Revenue management
• Independent labour

agreements
• Non-legacy cost base
• Separate IT system Cost Revenue
(Navitaire) Position & Product
Source : Eurowings Expert Presentation - London

329
BJI Consulting Ltd
Norwegian - Over 50 long haul routes in 2017
New routes in 2017 to/from USA-Barcelona and Copenhagen-San Fransisco

More new routes to be announced
Adding frequency to existing routes
10
Source:Norwegian Business Update

331
BJI Consulting Ltd
Industry Structure
Network carriers – in
Alliances & solo
Second tier of
allies Joint Ventures
Small number & Mergers
of alliance & subsidiaries
leaders
NMA‟s on
short- haul to
Longhaul?
NMA‟s coop with
Is there room Vertically integrated
Alliances??? for unaligned, Charter airlines
mid-sized
airlines ?
332
BJI Consulting Ltd
Gulf/Turkish Airline strategies
33
BJI Consulting Ltd
3
Number of routes (airline airport pairs) – non-
stop between Europe and Gulf (UAE & Qatar)
airports
33
4
Gulf carriers continue to gain market share on key
global markets
, Qatar, Etihad
33
MEB3 Carriers – 3 very different
strategies
33
BJI Consulting Ltd
6
Parked Slides below
33
BJI Consulting Ltd
7
33
BJI Consulting Ltd
8
MEB3 code-sharing, Etihad alliance
33
BJI Consulting Ltd
9
Etihad business model
34
BJI Consulting Ltd
0
Geographical Advantage
34
Source: Turkiish Airlines BJI Consulting Ltd
1
Turkish Airlines
34
BJI Consulting Ltd
2
Turkish Airlines Network 2015
34
BJI Consulting Ltd
3
Global Market Share Gains
34
BJI Consulting Ltd
4
Transfer Passenger Growth
34
BJI Consulting Ltd
5
Brand as a Competitive Advantage
Olivia Wirth
34
BJI Consulting Ltd
6
BRAND AND CUSTOMER
Group multi-brand structure

Targeted to diverse customer segments and marketplace
Australia
& New
Zealand
Singapore
Vietnam
Japan Hong
Kong1
Price sensitive segment Premium business and 10.7 million Members

leisure travel segment
1. Jetstar Hong Kong operations subject to regulatory approval

34
7
BJI Consulting Ltd
BRAND AND CUSTOMER
Placing the customer at the centre of our thinking

Investing and focusing on our customers
ICONIC BRAND RETAIL
LOYALTY DIGITAL
CHANNELS
DATA EXPERIENCE
UTILISATION
SPONSORHIP PRODUCT
34
8
BJI Consulting Ltd
BRAND AND CUSTOMER
Net Promoter Score global benchmarking

Methodology
What is NPS?
• NPS or Net Promoter Score is a global DETRACTORS PASSIVES PROMOTERS

brand benchmarking model of
customer advocacy
• It is embedded into the customer
service operations of Qantas and
Jetstar 0 1 2 3 4 5 6 7 8 9 10
• Enables continuous feedback from

customers to improve our service Net Promoter Score = % Promoters - % Detractors
strategy and delivery
• Used to measure our progress
34
9
BJI Consulting Ltd
BRAND AND CUSTOMER
Voice of the customer

Utilisation of NPSbenchmarking and methodology
Strategic
QUARTERLY
• Understand market view and relative
market share
• Competitive benchmarking
• Drivers of strategic NPS
• Share of Wallet MONTHLY
PURPOSE: For investment and strategic Touchpoint Airport, Lounge & Inflight
decision-making
Operational • Panel of ~25k Frequent Flyers
• On the day performance at specific
DAILY touch points
• Regular surveys of a customer‟s end-to-end
experience per flight • Customer feedback enables
• Measurement of journey advocacy conversationsdirectly between
• Measure total end-to-end customer journey customers and frontline managers
• Real time results reporting
PURPOSE: Track journey competitiveness

and determine focus for customer PURPOSE: Immediate response to customer
improvements feedback. Lead indicator for Operational NP S
40
35
BJI Consulting Ltd
0
BRAND AND CUSTOMER
Investment has led to market recognition and

customer advocacy „Qantas did, not just said’
Investment in product and people
• Extend leadership position with award-

winning lounges
• Enhance Qantas on-board product
through A330 and B737 refurbishments
and improved inflight entertainment
• Jetstar first Asia-Pacific LCCto fly B787
Dreamliner
• Ongoing Customer Service Training
programscompleted by more than 10,000
frontline and corporate domestic
employees1
• Focus on superior service and dining
experience (in air and on ground)
• Innovation focused on speed and ease
of travel
41
1. As at April 2015 for Qantas Domestic, Qantas International and Corporate segment.
35
BJI Consulting Ltd
1
BRAND AND CUSTOMER
New brand campaign

Reconnecting with Australians
Successfully rebuilding an
emotional connection
• New „Feels like Home‟ brand campaign launched

in November 2014
• Customer insights led proposition to re-connect
emotionally with Australians
• 2 minute TVC1 has had over 1.5m views on
YouTube to date
• Strong performance and outperforming industry
benchmarks
• 66%of Australians who saw the TVC felt more
positive about Qantas2
• 54%of Australians who saw the TVC felt it made
them want to fly with Qantas2
1. Television Commercial. 2. Source: House of Brand Advertising Tracking. Feels like Home advertisement was recognised by 67% of Australians based on highest net recall score in Jan 2015 which includes
2min TVC and Charlotte TVC. “Felt more positive” and “Felt it made them want to fly” diagnostics based on average of all TVCs included in advertising tracking (2min, Alice, Charlotte and Melinda TVC). Based
on recognisers of each TVC (2min, Alice, Charlotte and Melinda).
35
2
BJI Consulting Ltd
BRAND AND CUSTOMER
Jetstar brand consistency

Maintaining our leadership LCCposition
140 million passengers in a decade
• An Australian brand leading the way

across Asia-Pacific
• The market leader on price
competitiveness
• Brand strength across all markets served
in Asia Pacific - 70 destinations, 16
countries/territories
35
3
BJI Consulting Ltd
BRAND AND CUSTOMER
Digital Transformation - over a million fans and followers
New direct channels to market ~45% of Group

marketing spend
now through digital
• Qantas.com - Australia‟s No. 1 travel website1
channels
• 630,000 Fans on Facebook
• 270,000 Followers on Twitter
• 80,000 Followers on Instagram
• 20,000 Subscribers on YouTube
• 90,000 Followers on LinkedIn
• 20,000 Followers on Google+
• In 2015 there have been 70,000 queries
from passengers online2
• Jetstar.com - 15.5 million visits per month

• 1,150,000 Fans on Facebook
• 230,000 Followers on Twitter
• 18,000 Followers on Instagram
1. Source: Hitwise Australia. Most Popular Websites in Travel (Airlines and Transport category), April 2015. 2. January 2015 - April 2015.
35
4
BJI Consulting Ltd
BRAND AND CUSTOMER
Qantas Airways: brand & image

Flyer attitudes and perceptions in 2015 YTD1
Premium Domestic Airline Committed to Delivering Best Service & Products
Perceptions at the Perceptions at the highest level

SERVICE
+8% highest level ever seen +15% ever seen regarding Qantas‟
IMAGE
since 20082
regarding the quality of since 20082 service & product focus
2015
the Qantas Domestic
experience
Iconic Australian Safety Reputation
2015: CONSISTENTLY IN 2015: CONSISTENTLY IN 90th

CORE 90th PERCENTILE PERCENTILE
BRAND +2% Perceptions remain +12% Safety continues as a core attribute.
VALUES since 20082 since 20082
2015 extraordinarily strong of Australian flyers feel even more secure
Qantas‟ iconic Australian flying with Qantas than ever before
status
1. Year-to-date. 2. Average of calender year 2008 versus average between January to April 2015. Source: Qantas Domestic Key Indicators Studies.
46
35
BJI Consulting Ltd
5
BRAND AND CUSTOMER
Strong improvement across domestic and international
DOMESTIC INTERNATIONAL
Provides Exceptional Customer Service
Perceived Best Domestic Airline 2015 YTD Customer perceptions of Qantas
2015 YTD1 International providing exceptional
For Business Travel +14% pts
60%point On 20082 customer service are significantly up and at
LEAD Qantas Domestic continues to own
over VA4 record levels
this domestic market brand position
Provides a Competitive Product

2015 YTD
+12% Customer perceptions of Qantas
On 20083 International providing a competitive
First Choice Next Domestic
2015 YTD1 product are significantly up and at record
51%point Business Flight
levels
LEAD Qantas Domestic continues as the
over VA4 predominant first preference for Is a Premium Full Service Airline
Australian domestic business travel 2015 YTD
Customer perceptions of Qantas
+6%
On 20103 International being a premium full service
airline are significantly up and at record
levels
1. January 2015- April 2015 versus Virgin Australia. Source: Qantas Domestic Key Indicators Studies. 2. April to June 2008 quarter versus January to March 2015 quarter. Source: Qantas International Customer 47
Satisfaction, Qantas. 3. Average between April to December 2008 versus January to March 2015 quarter. Source: Qantas International Customer Satisfaction, Qantas. 4. Virgin Australia.
35
BJI Consulting Ltd
6
BRAND AND CUSTOMER
Jetstar customer satisfaction and advocacy

Relevant and measurable for low-cost as well
Jetstar leads on “has low-priced fares” perceptions Jetstar the clear leader in Strategic NPS for LCCs
44
32 +23pts
Lead
Jetstar Competitor
Average Jetstar Tiger
January to March 20151 May 2013 to February 20152
48
1. Source: House of Brands, January to March 2015. 2. Source: Ergo Strategic NPS, May 2013 to February 2015.
35
BJI Consulting Ltd
7
The basis of airline competition has expanded over time
Changing Nature of Airline Competition
Customer
Partnerships
Product • Insights
Operations • Global alliances • Technology enabled
• Seats • Joint ventures • Loyalty
• Aircraft • Lounges • Virtual airlines • Personalisation
• Airports • Entertainment
• Safety
More replicable Less replicable
While originally focused on physical assets, airlines today compete on a range of dimensions, including
operations, product, partnerships and increasingly customer capabilities
35
8
BJI Consulting Ltd
We have a rich and deep source of customer insights

OUR CUSTOMER INSIGHTS AREA KEY COMPETITIVE ADVANTAGE
Flying behaviour 50m+ passengers annually across Group

of our customers
Frequent Flyer 10.7m members
profiles and behaviour
Customer NPS1 & feedback Panel of ~25k Frequent Flyers
can record NPS each time they fly
Customer Market-wide segmentation insights

segmentation
Web, mobile & social 2.5m+ visits to qantas.com / week
media interactions 3.7m+ visits to Jetstar websites / week
Rich history of data 27 years of historical data
35
9
BJI Consulting Ltd
Customer insights are key in making dual brand network
decisions
• Optimising our dual brand network requires consideration Dual Brand: Route Decisions
across multiple dimensions:
Informed by Customer Insights
– market demand and capacity
– financial implications
– competitive positioning
– utilisation and network effects
– customer targeting and brand positioning
• Our market-wide customer segmentation provides a detailed

understanding of Australian flyer market needs and attitudes,
enabling:
– strategic positioning of our dual brands
– targeting of strategic customer segments
• These insights are critical when making co-ordinated dual

brand network decisions
36
0
BJI Consulting Ltd
Customer data facilitates seamless disruption management
Managing disrupted flights operationally Disruption Management: Insights Aid

• Minimising disruptions for more valuable customersis key to Operations and the Customer Journey
decision-making when managing flight disruptions
• Assessing customer value considers:

– Qantas Frequent Flyer tier
– Whether managed corporate / SME1 flyer
– Recent customer revenue to Group
– Prior disruption history
Managing disrupted customer journey
• Once operational disruption occurs, affected customers are notified

via e-mail or SMS, and directed to qantas.com (desktop and mobile)
• Customers have the option to: accept a proposed new flight, change
to an alternative flight, or cancel and request refund / voucher
• The initial new flight proposed depends on customer value
1. SME: Small and medium-sized enterprises.

36
1
BJI Consulting Ltd
Customer insights enable Group innovation and service
excellence
• Auto check-in on mobile: industry-leading; drives customer
advocacy; reduces footprint at major airports
• RedApp: provides customer history and information directly to

cabin crew and ground staff on iPads
• Webchat: Australian industry-leading; proactively tracks and

assists customers through online booking process
• Mobile travel companion: app provides personalised assistance

on day of travel
• Cross sell through digital channels: utilise customers data for

personal offerings
• New targeted marketing technology: enabling more tailored,

personalised and effective marketing for Jetstar
• Loyalty-led innovation: across Qantas Frequent Flyer and

adjacent business
36
2
BJI Consulting Ltd
Easyjet
• Evolution of business model

• Channel shift
• Data
• Marketing
• Mobile
Source : Easyjet Market Presentations
36
BJI Consulting Ltd
3
Proven stra tegy a n d execution
20 10 - 20 14
Culture & Comp ellin g Customer & Capital

p eople network p roduct Cost a d vant a ge discipline
St rengthened t eam, Passengers grew by 12 Int ro duced t he easyJet lean d elivered Rigoro us focus o n
successio n planning millio n 1 Custo mer Chart er c.£170m of ret urn o n cap it al
and developed sust ainable savings int ro duced
Profitably increased euro pe by easyJet &
pipeline of t alent generat io n easyJet OTP imp roved fro m • Mad rid base closure
number of ro ut es from
Staff t urnover c.500 t o c.700 66% in 2010 t o 87% in
Enhanced pro duct Regu lar dividend
decline d fro m 7.6% in 2013
Opened 5 new bases int roduced and
2010 t o 6.5% in 2013 • Allocat ed seat ing
including Nice and increased t o 3x cover
• Business
Over 90 % of easyJet Toulo use passenger To tal cash ret urns t o
peo ple are now • Digit al shareholders of £589
Cont inued t o
shareholders millio n
st reng then key bases
Lo ad factor increased
• Flybe slo ts at fro m 87% t o 89%1
Gat wick
Custo mer sat isfact io n
incre ased fro m 73% in
2010 t o 83% in 2013
Platfor m to deliver g rowth & sustain leadin g retu rns
1. 3 0 Se ptem b er 20 10 to 3 0 Se ptem b er 20 13 36
BJI Consulting Ltd
4
Low risk opportunitie s within the current netw ork
footprint
Op p ortunity at e asyJet‟s top 2 0 airports
Other e a syJe t
LCC 1. 28 million se a ts on e xisting e a syJet
airport pairs
Non LCC o Low risk o pport unities t o consolid at e
transfe r
(est.) Non exist ing market posit ions by t hickening
LCC P2P rout es
(est.)
8 6m
2. 33 million se a ts repre sents

2. Opportunity to opportunity to connect existing
“join the dots” e a syJet network points
33 million se ats
o Join t he dot s
o Leverag e pan-Euro pean net work
1. Current
e asyJet
airport pairs 3 . Other g rowth 3. 25 million se a ts opportunity
28 million se ats opportunities
o Able t o expand exist ing net work
„Thicken routes‟ 25 million se ats foot print
o New network points
o New b ases
22
36
Source: OAG sche d uled d a ta for the 12 m onths to 3 0 Se ptem b er 20 14 BJI Consulting Ltd
5
Stron g bra n d awareness d elivers sales
Pass e n ge r originatio n
million
Catchme nt
e asyJet
database
64 passengers
300 million
22.6
million
million 57 conta cts bookings
million
10.5 customers
41
36
BJI Consulting Ltd
6
Improving c u s to m e r e x p e ri ence
• Custo mer satisfaction improve d

• 56% of customers have now flown with us b e fore
• Avera ge a ge of customers increasing
Ave ra g e a g e by m arket
Averag e ag e
at d ep art ure
42
36
BJI Consulting Ltd
7
Stru c tu r e d r e -t a r g e t i n g
• 57 million customers on th e database

• 41% marketable
• Marketa ble customer base has
increased thre e -fold since 2012
• Da ta d riven creative appro ach
• Custo mers in the conta ct progra mme
are 33% more valuable than those who
are not
• Emailed customers book 24% more
freq uently than non-emailed
customers
43
36
BJI Consulting Ltd
8
Digital str a t e g y
• +5 0 0 million visits
• +26% - overall traffic increase (including mobile)
• c.15% - step 1 web conversion improve ment
• 8.6% - mobile (% ecommerce bookings)
44
36
BJI Consulting Ltd
9
N o n-s e a t r e v e n u e
• £64 million1
• New d e als with Europcar &
Allianz
• Levera ge CRM platform to
deliver sales
• Significant Pan-European
holiday options
• Hotelopia – flight sales and
holidays
• Series seat sales
• In-flight
46
37
1. Ye a r e nde d 3 0 Se ptem b er 20 13 BJI Consulting Ltd
0
Q u a lity reve n u e s tr e a m s – H o l i d a ys
• Major opportunity for easyJet

• 10 million European flight package
bookings in UK - significant market in
Germany, Switzerland & a cross Europe
• New deal with Hotelopia
Proposition
• Package holidays as beach, city and
ski - full European coverage
• Exclusive product range and prices
Including branded 5 star properties
• Fully protected (ATOL in UK)
• Segmented product to cater for
specialist requirem ents
47
37
BJI Consulting Ltd
1
Q u a lity reve n u e s tr e a m s - Inflight
• New differentiated award winning products

• Best Airline - Inflight Reta il and Food &
Bevera ge
• New products e.g. coffee sales up 17%
• Margin improve ments – up 9%
• New brochure design from specialist
consultant to Waitrose
• Stock loss, wa s ta ge and accuracy
improve ments
48
37
BJI Consulting Ltd
2
2.
De ma nd
Drive d e m a n d: Business t r a vel
Building blocks FY11 FY12 FY13 FY14 FY15

• P ro p o sition
Delivered
 improve p unc t uality
Ongoing
• a d d new network point s Ongoing
• incre a se frequ ency
• P ro d u ct
Delivered
 launch & d evelop flexi fare
Delivered
 deploy alloca t e d se a ting / yield ma n ag e
Ongoing
• enable Fa st Track Security
Delivered
 launch Inclu sive Fare
• Sales
Delivered
 recruit pan Euro pean sales force
Ongoing
• neg o tiate TMC incentive s
Ongoing
• deliver co rpo ra t e fare s
• Distribution
 a g re e ne w co m m ercial t er ms with GDS Delivered
 st andardise GDS booking pro ce ss Delivered
• strengthen position on Self Bo o king To o ls In progress
• Considera tion
 develop Business Sense campaign Delivered
 incre a se allocation of m edia weight Delivered
34
37
BJI Consulting Ltd
3
Business journ ey
Flexible corp orat e Trave l a g e ncy

fare s ag re e m ent s Inclu sive fares
+12 millio n b usiness

De d icat e d sales te a m Fast t rack Allocat e d p asseng e rs and
in co re ma rket s security seat ing g rowing
Busine ss e asyJet p lus card s Co nt ract e d

orient at ed Corp o rat e
ne t work Acco unt s
Distrib u t ion Online b ooking “Bu siness sense” 2014

agre e m ent s with t ool int e g ration “Best short haul airlin e ”
cam p aig n
all majo r GDS‟s Busine ss t rave l award s
50
37
BJI Consulting Ltd
4
D elivering e x p e c te d r e s u lts
• 12 million business passengers p e r YOY b u siness p a ssenger growth

annum Millions
13
• 20% business passenger 12
p e netration
11
• +280 corporate agreements 10
9
• +80 travel management companies 8
contracted
7
• Distribution agreements with all 6
major GDS and self booking tools
51
37
BJI Consulting Ltd
5
“Multi c h a nnel” s a les a p p r o a c h
• Contracted relationships
• TMC supported (Online/Offline)
• Dedicated stakeholder management
Corpora te • Savings / ROI value proposition
Corporate spend
contra c ts • Management reporting

• Corporate discounts
Travel Management • Distribution channel

Company (TMC) • Middle market growth
• SME channel
Direct
• www.easyjet.com
Corporate accounts
54
37
BJI Consulting Ltd
6
Multi-channel distribution
• GDS connectivity improvem ents across

all channels
• Self Booking Tool integration with
consistent display
• Flexibility to book direct
• Supporting the TMC‟s preferred booking
channel across Europe
Self boo king
t o ols
• 10 0 % YOY GDS penetration improvements

• Disp layed similar to a ll other carriers
• Lead ing the industry with flexible distribution standards
55
37
BJI Consulting Ltd
7
Revised pricing/products
• Tailored fares and products

for the corpora te customer
• Fares distributed through the
TMC‟s GDS systems
• Fares available online through
all se lf booking tools
• Fast track for Flexi fare s &
easyJet p lus at more than 35
airports
£ growth
£ growth
Inclusive Ticket Gro wth Flexi Ticket Gro wth
56
37
BJI Consulting Ltd
8
Focu ss e d m a r k et ing ca m p a i g n s
• Targeted sta keholder advertising

• Product re -enforcement
• Levera ge all me d ia channels
• Influencing b e haviour
• Brand awareness and perception
• Educating the corpora te traveller
58
37
BJI Consulting Ltd
9
Understandin g e volvin g custom e r b a s e
Great service: “consider flying easyJ e t again ?” In cre a s e d p rop ortion custom ers re -b ooking
98% 9 7%
96% Customer
95% 96% Volumes
55%
Ne w
50%
Exising
50% 45%
FY'10 FY'13
UK Fra nce Italy Switzerlan d Germa ny
Older p a sse nge rs, highe r d isposab le inco m es Incre a singly p a n-Euro p e a n cus t o me r b a s e
Average age FY‟10 FY‟13
41
UK
40 Spain
Ot he r Ot he r19%
France
26%
39 Germany
Italy
UK 4 7% UK 4 4 %
38 Switzerland S witze rland
Portugal 10 %
37 S witze rland
Netherlands
7%
36 It aly 13%
It aly 8%
35
France France
34 12 % 14 %
FY 10 FY 11 FY 12 FY 13
30
Source: 38
• Grea t se rvice: surve ys conducte d by Millward Brown & GfK for 12 m onths to e nd Se ptem b er 20 13 BJI Consulting Ltd
• Othe r d a ta from inte rnal e a syJet syste m s 0
Continuin g to drive d e m a n d & conversion
38
BJI Consulting Ltd
1
Continuin g to drive d e m a n d & conversion
38
BJI Consulting Ltd
2
3.
Loyalty De ma nd
38
BJI Consulting Ltd
3
1.
A uniq u e netw ork which is hard to replicate Ne t work
Le a ding p re s e nc e o n to p 10 0 ro utes Ma rke t leading ro ute fre q ue nc ies
50 8
45 Numb er of marke t pairs opera t e d 7.0
7 Avera ge route frequenc ies p er we e k
40 between to p 10 0 primary airports
35 6
5.0
30 5 4.5
4.0
25 4
20 3.0
15 3
10 2
5 1
0
0
e a s yJ et Ryanair Vue ling Norwegian Wizz
No.1 & 2 p ositions a t slot constra ined a irp orts Stro ng m arke t sha re b uilt over time
2011 m arke t sh are

53%
50 % 2015 H1 m arke t sh are 47%
42% 43%
40%
36%
32%
29%
27%
25%
21%
Gatwick Edinburgh Nice Malpensa Geneva Basel
easyJ et No.1 or Slot constrained during No1 No1 No1 No1 No1 No1
No.2 position peak times
Source: OAG
BJI Consulting Ltd
38
Continuin g to invest in the network
Amsterd a m
• New base at Schiphol Airport
• Three based aircraft
• Fo urt h aircraft from Oct ober
2015
• Incre a sing capacity in Summer
2015 by over 20%
Porto Naples
• Second Portuguese base • Base opened in spring 2014 with 2
based aircraft
• Two based aircraft
• Will incre a se to 3 based aircraft for
• Manchester, Bristo l and
Summer 2015
London Luton routes to b e
launc hed in Summer 2015 • Capacity will incre a se by over 7% this
Summer
• Incre a sing capacity for
Summer 2015 by 20%
• Porto base will provide
additional network flexibility
38
BJI Consulting Ltd
5
Proven yield model
Reve n u e Customer
Digital a n d
Mana g e m e n t Relationship P roduct
Bra n d
System Mana g e m e n t
• Stro ng a nd • D e mand b a s e d • Exte ns ive d a ta • Business

improving b ra nd system • Historic picture of p a sse nge r
positions • Dynamic cus t o me r‟s initiative
• Mob ile a p p co ntinuo us p ricing exp e rience • Allocate d se a ting
• Flight tracker • Yield m a n a g e m e nt • Pe rsonalised • e a syJet Holidays
• Mo b ile host of allocate d s e a ting co mmu n ications • Inflight a n d
• Push no tifications a nd b a gs • Loya lty tria l anc illary reve nue
HOW WE SELL
38
BJI Consulting Ltd
6
Digital leadership
„Inspire me‟
e ma ils – targe t e d
and personalise d
New flight tracker Personalised and live updates

dire c t from Operations Control
Centre
Apple Watc h a p p Pa ssport scanning

Proactive push notifications save /retrieve Touch ID
Open a nd upfront
38
BJI Consulting Ltd
7
Digital leadership – Mobile Host a t Gatwick
Provides guida n ce a n d n ext step instructions to passen g ers during their d a y of travel
38
BJI Consulting Ltd
8
RMS a n d CRM developm e n t
Reven u e m a n a g e m e nt system Customer relationship m a n a g e m e nt

• Bespoke and proprietary revenue
• Custom er data at the heart of
management system
easyJet
• Demand based system which
• Leverage data, insight and
maximises the revenue from a flight
technology to personalise every
customer touch point
• Continuous d evelo p m e nt
Customer
profile
• Able to predict and duplicate decisions
made by pricing managers
Ch annel Tra vel
da ta history
• Assigning sales profile curves to each
individual flight
• Continuous dynamic price setting

Con ta ct
deta ils / Tra nsaction
history
• Yield management of allocated seating history
and bags
38
BJI Consulting Ltd
9
Continuin g to drive b u sin e ss passe n g er
initiative
Addressable m a rket Progress in the h alf
• Europea n short-haul marke t e stima te d • Growth in passenge rs in line with

to b e c.165 million se a ts expectations with strong growth in
Inclusive fare s
• Manage d Business se c tor pre sents
biggest opportunity • 59% incre a se in GDS utilisation
easyJet market share easyJet market
across t he direct • Second bag across Business fare s and
share across t he
segment is 15% manag ed segment is e a syJet Plus card holders
3%
• Fa st track security for e a syJet plus card
holders at 35 airports
Direct
spend • Strengthening sales t e a ms in Germany,
opportunity Managed France and the Netherlands
85% spend
opportunity
97%
39
BCG a nalysis 20 14 BJI Consulting Ltd
0
Future sustaina b le cost savings
Gatwick single terminal consolidation
Mainten a nce cost savings
easyJet lean
Covers the Gove rnance Grou n d h an d ling initiatives

total cost and
base milestones
Lifestyle option
Long and Embedded
p rogra m s for crew short term throughout
savings easyJet
culture Fuel efficient en gines –
CFM International
Regulated a n d unregu lated

airport d eals
e a syJet lean will deliver £30 million - £ 4 0 million in sustainable savings p e r

a n n um over th e next 5 years
39
BJI Consulting Ltd
1
British Airways
• Brand proposition
• Ancilliary revenues
• Restructuring
• Digital
• ‘Know Me’ CEM
• Back office Global Business Services ( GBS ) as part of IAG
• Source : IAG / BA Investor Presentations
39
BJI Consulting Ltd
2
Key messages
Targeted customer investment / Maximising value of London airports CUSTOMER
Material improvement in operational performance planned OPERATIONS
Delivering a cost competitive platform and capital efficiency EFFICIENCY
Developing a dynamic culture to drive the business further and faster PEOPLE
British Airways Introduction

3
9
39
#Plan4 – Changing the way we fly the world
Key metrics: ROIC EqFCF NPS RASK CASK
CUSTOMER OPERATIONS EFFICIENCY PEOPLE
Invest & innovate Be safe, reliable Improve capital Unleash our true
where customers and responsible efficiency and have potential
value it most competitive costs
Service – Product - Revenue Safety – Reliability – CSR Costs – Simplicity - Agility Capability – Motivation – Speed
DIGITAL
British Airways Strategy

3
9
39
Customer investment across all cabins
Short-haul catering quality/choice WIFI starts in 2017 – 90% long- New premium facilities at
upgraded in partnership with M&S haul fleet complete by 2019 Heathrow, Gatwick, JFK, Boston
52% of wide-body aircraft new or New app will provide options to New First product on B787-9 and
refurbished – from 35% in Q4 2015 upgrade and manage disruptions new First Wing at LHR
British Airways Customer

3
9
39
£400m investment in Club World
Ambition to create an experience that exceeds that of our key competitors
Transform food & drink Step change in service Best night‟s sleep Best ground service
• Radical • Premium service • New ambience to • „First Wing‟ opening
improvement in training maximise sleep at LHR T5 in 2017
quality and
• Complete re-design • Better soft product • New LGW lounge
presentation
of service routine including bedding opens Jan 2017
• Increase choice
• Performance • New seat in • New Boston lounge
through pre-order
management development coming soon

3
9
39
Opportunity to improve First and Traveller contribution
ROIC contribution Cabin specific strategy Cross cabin
NPS high but paid load factor low

First • Introduce 8 seat First cabins with higher spec (787-9) British Airways
• Remove First from routes with limited demand Brand
Club continues to perform well on long and short-haul Extensive

Club • Major investment in Club World planned route network
• Club Europe to be introduced on UK domestic flights

Loyalty
Highly popular with both business & leisure customers proposition
Traveller Plus • Increase capacity maintaining competitive seat density

Personalised
• Enhanced food & drink experience service
Purchase decision driven by value for money

Operational
Traveller • Seat density/unbundling drive price competitiveness reliability
• Differentiate with brand, network, loyalty, service, reliability

3
9
39
Heathrow hub gives BA a competitive advantage
BA well positioned to take advantage of

Europe‟s No.1 hub for transatlantic travel
weak sterling
European hub BA US routes 100%
EUR
seat share of London currency mix 90%
27% 80% OTH
North Atlantic
seats 70%
Other
34% 60%
USD
50%
40%
30%
20%
Paris GBP
12% 10%
Dublin
4% 0%
Madrid
4% Amsterdam Frankfurt
Source: OAG Jan-Dec 2016
8% 11% • 60% of long-haul pax sold outside UK
• 59% of US route revenue is non-Sterling
• More than twice NATL passengers as Paris
• Ability to increase mix of non-£ revenue:
• Strong European feed enables BA to start
new routes (e.g. New Orleans) o Redeploy capacity
• World‟s largest premium O&D – corporate & o Optimise connecting flights
premium leisure o Increase availability of overseas seats

39
Short-haul: more dynamic peak season scheduling
Business routes typically have low seat factors ..so we are growing Heathrow leisure in peak
in peak summer months… summer
Aggregate seat factor of 3 rotations switched
from business to leisure routes in summer „16
86%
43%
• Business routes provide BA with stable all • New summer-only Heathrow services for
year round short-haul contribution 2017:
• However, in peak summer months, leisure o Brindisi, Montpelier, Murcia, Nantes,
routes can provide higher contribution Pula, Tallinn, Zakynthos

39
Long-haul: sustainable mid-cycle margin, growth ambition
• 4 new routes added in last 12 months

• Further North Atlantic, Asia and Middle East
Grow destination breadth opportunities in scope
• 25 787s fully deployable from 2017 for
medium size route development
• A380 now on 6 North Atlantic gateways

Strengthen network depth on • „Super Hi-J‟ on LHR JFK
key markets • Fleet mix offers multiple up-gauge
opportunities
• Asian hub and JV with Qatar Airways

Leverage alliance • Codeshare with China Eastern
partnerships
• Potential LATAM joint venture

40
Operational reliability remains a key focus
British Airways is the most punctual major

ATC has been the major cause of delays
short-haul carrier in London
40% 79%
35% 77%
30%
25%
20% „Fly‟ check-in

system instability
15%
10%
68%
5%
0%
ATC Aircraft Rotation

Ramp Heathrow Cust Service British Airways Ryanair easyJet
Information Mgt
Source: Latest CAA data
• BA more punctual than Ryanair & easyJet

• „Fly‟ performance continues to improve
• New resilience plan will drive higher
• ATC remains the main cause of delays punctuality / baggage performance in 2017

40
Increased resilience to counter external factors
• Additional summer aircraft availability by re-timing retirements and

Create a schedule with planned maintenance
greater resilience
• Schedule A320 sub-fleets as a single fleet to improve flexibility
• Greater focus on aircraft turnaround

Improved delivery of the
• Contingency crews and additional flexibility in rostering
operational plan
• Increase in Technical Dispatch Reliability
• New integrated baggage system and increased baggage capacity

Focus on transfer baggage
• Block time changes for flights with high transfer loads
performance
• IT system fixes to improve baggage integration with other carriers
British Airways Operations

40
Operational efficiencies enabled by technology
New technology rolling out through 2017
Disruption Check-in Departure Ramp
• Self-service • 72 self service bag- • Auto-boarding • Remote control

rebooking drop desks across gates trials aircraft push-back
LHR/LGW
• Better service/ • Automated • Trials completed
lower cost • Auto document connections gates
check
British Airways Efficiency

40
Structural change programme has commenced
#Plan4 – changing the way we fly the world
Operations Engineering Cabin crew Head Office Sales force Call centre
• Technology • Implement • Voluntary • Streamline • Technology • Review call

to automate IAG MRO redundancy head office to automate centre
above and strategy programme manpower back-office strategy
below Q3 2016
• Mobile • Develop a • SME sales • Modernise
aircraft wing
automation • Mixed fleet dynamic team and technology
• Digital 42% of crew culture flexible
operations by end 2017 working
(35% today)
Subject to consultation

40
Review of future pension provision has commenced
Agreement reached with trustees to address

20 year Gilt yields at record lows
NAPS pension deficit
4.0%
£3.0bn £2.8bn
£2.7bn
£2.6bn 3.5%
£2.5bn
£2.1bn 3.0%
£2.0bn
2.5%
£1.5bn
2.0%
£1.0bn £0.9bn
1.5%
£0.5bn
£0.2bn
1.0%
Apr 12
Oct 12
Apr 13
Oct 13
Apr 15
Oct 15
Apr 14
Oct 14
Jul
Jul
Jul
Jul
12
13
14
15
-
Jan
Jan
Jan
Jan
Jan
12
13
15
16
14
2000 2003 2006 2009 2012 2015
Source: Bank of England
• Fixed pension repayments of £300m per annum • Next step is to address future service cost
until 2027 to close the deficit
• We will be consulting colleagues, trustees and
• Freedom to pay dividends up to 35% of profit unions about future pension provision
after tax

40
Increasing capital efficiency
Gatwick‟s new B777 configuration will give a lower cost/e-seat than Norwegian B787
OLD CONFIGURATION
New Gatwick B777
40J 24W 216M configuration will increase
seat count from 280 to 332
Arrives early 2018

NEW CONFIGURATION
Long-haul configuration efficiency Short-haul up-gauging & densification
• B787-9s arriving with smaller F cabin • A319s reduce from 44 to 26 by 2021

• 25 B777s will be converted to 10-abreast • LHR A320s densified to 180 seats (from 168) W17
• LHR A321s densified to 218 seats (from 205) S18

40
#Plan4 – Changing the way we fly the world
Key metrics: ROIC EqFCF NPS RASK CASK
CUSTOMER OPERATIONS EFFICIENCY PEOPLE
Invest & innovate Be safe, reliable Improve capital Unleash our true
where customers and responsible efficiency and have potential
value it most competitive costs
Service – Product - Revenue Safety – Reliability – CSR Costs – Simplicity - Agility Capability – Motivation – Speed
DIGITAL
British Airways People

40
Growth drivers
Growth
contribution
• Grow North Atlantic around 2.5% per annum
• Strengthen key markets – A380 on Washington, San Francisco, Miami and
North America Vancouver, Boston; Super Hi-J 747 on New York and Chicago
• Growth to secondary cities – San Jose (Calif) and New Orleans
• Continued strong growth at Gatwick primarily leisure focussed

LatAm • Flexibility to add back capacity into Brazil when economy recovers
• New service to Santiago de Chile commencing Jan 17
• Well positioned to hold business share and grow leisure

• Further densification planned from 2018 (NEOs and CEOs)
Short-haul • Flexibility to up-gauge short-haul fleet at Gatwick
• CityFlyer growing with flexibility to deploy fleet from several UK airports
• B787-9s deployed to Delhi, Seoul, Kuala Lumpur, Shanghai

• China 2020 strategy: Develop airline partnerships
Rest of world • Africa – responsive to opportunities in key energy markets
• A380 enables strategic growth in large markets (e.g. HKG, SIN, JNB)
British Airways Growth

40
Margin drivers
Margin
contribution
• Challenging macro environment

Unit revenue • Prudent forecast assumptions XXX
• 37% of „new generation‟ fleet by Q4 2016 rising to 52% by 2021

Fuel efficiency • 11 B787-9 aircraft delivered in 2016 - total B787 fleet of 24 aircraft by Dec-16
• 2 A380 deliveries in 2016 bringing fleet to 12
• Streamlined head office by end 2018

Employees • Lower Heathrow handling costs enabled by technology
• Reduction in IT and Engineering costs enabled by IAG platform
• Focus on reducing overseas airport charges

• Ground handling tenders at outstations
Suppliers • Engineering transformation via IAG maintenance strategy
• Simplification of aircraft fleet (long and short-haul)
British Airways Margin

40
BA on track to meet IAG targets
Rolling 12m 2016-2020
Lease adjusted
operating margin (%) 12.9% 12-15%
Sustainable through the

cycle RoIC (real terms) 12.5% 15%+
ASK growth
per annum 2.3% c.2%
Fleet
(period end) 296 301
British Airways Targets

41
Key messages
Targeted customer investment / Maximising value of London airports CUSTOMER
Material improvement in operational performance planned OPERATIONS
Delivering a cost competitive platform and capital efficiency EFFICIENCY
Developing a dynamic culture to drive the business further and faster PEOPLE
British Airways Summary

41
Know Me
All possible
customers Unique Known
Customers Customers
100 to
150m* 79 m 10 m
41
BJI Consulting Ltd
2
Jan-Jun 13
Source: Ipsos MORI All respondents excluding don‟t know, Jan-Jun 20 13
41
BJI Consulting Ltd
3
Rolling 12 month revenue performance
Global Point of Sale
1.4 0
1.3 0 • 7% of UK travelling
companies are in our current
programme
Indexed Revenue
1.20
1.10
• SME is the fastest growing
corporate channel and
1.0 0 accounts for £2.8 billion of
our revenue (£1 billion of
which is in the programme)
0 .9 0
0 .8 0
Jan-12
May-12
Dec-11
Feb-12
Mar-12
Apr-12
Jun-12
Jul-12
Aug-12
Oct-12
Dec-12
Jan-13
Feb-13
Mar-13
Apr-13
May-13
Jun-13
Jul-13
Aug-13
Sep-12
Nov-12
Sep-13
Uplift Month
Index O nBusiness Tracked Corporates
41
BJI Consulting Ltd
4
1.6 0
1.4 0 BA.com has t he highest rate of

Indexed Visits – Selected websites in travel
website t raffic growt h of any

major UK airline website o r O TA
1.20 since January 2012
1.0 0
0.80
0.60
Rolling 12-month average visits to websites

0.40
Jun-12
Jun-13
Dec-11
Mar-12
Mar-13
Sep-12
Dec-12
Sep-13
Brit ish Airways Lastminut e.co m
Expedia easyJet Ryanair
Source: Experian Hitwise - Travel Indust ry, mont hly t otal visits
41
BJI Consulting Ltd
5
50 0
Targeting 5 0 % of customers
450 buying more than just a flight
400
35 0
30 0 Upgrade
250 Baggage
Seat ing
200
BAH Ground
15 0
10 0
50
0
2011 2012 2013 2014 2015
*BAH = BA Holidays = ground revenue, not contribution
41
BJI Consulting Ltd
6
2011 2014 (Forecast)
Rank Company Pax. #‟s Rank Company Pax nos

000s 000s
1 TUI 4,361 1 TUI 4,418

2 Thomas Cook TO 4,038 2 Thomas Cook TO 3,694
3 Gold Medal 684
3 Jet2Holidays 1,187
4 Expedia Inc 489
4 Travel Republic 799
5 Thomas Cook Retail 434
5 Expedia Inc 778
6 Avro Ltd 413
6 On The Beach 639
7 Virgin Holidays 400
7 Avro Ltd 500
8 Travelworld 400
Trailfinders 368 8 BA Holidays 468
9
10 On The Beach 300 9 Travelworld 400
19 BA Holidays 175 10 Virgin Holidays 330

Source: CAA Projections @ 2011 and @ O ctober 2013 for 2014
Reflects Package sales and Flight Plus sales
41
BJI Consulting Ltd
7
+12.5% +31.5% +17.0%
Capacity Revenue Unit Revenue
increase increase improvement
+1.2 % 1.7 million

Non premium market Extra
share increase passengers
71% +3.3% +6.8%

Of markets have seen Premium market Premium load
premium share gains share increase factor increase
Source: JAS; BA MIDT Rolling 12 Months at Launch (Oct 2010) vs. latest rolling 12 Months (Sep tember 2013)
41
BJI Consulting Ltd
8
Benefits materialising More to come
2011 2012 2013 2014
Co-ordinated
Codeshares & Joint 5 Year Network
Finnair Joined AJB response to
Pricing Strategy mkt developments
Policy Alignment US Airways

openSkies Disruption Strategy
60+ integration
FFP Transatlantic RM Structural 4 New Routes

JB SME proposition
Gap closed Changes Launched
5 New Routes 5 Year Customer New Aircraft & Enhanced disruption

Launched Strategy Products process
Joint selling Selling AJB Mobile boarding Further n etwork

launched products online passbook expansion
41
BJI Consulting Ltd
9
85 1 5 m in
% p u n c t u a lity E n g in e e r in g
80 Sing le
%
M o d er n
75 P e n s io n Ag r e e m e n t
% changes M a n a ge m e n t P e n s io
70 ( r e t ir e m e n t a g e re d u c e d b y n
% T5 eq u a lis e d ) 33% change
65 open s
%
Mar10
Mar07
Mar08
Mar09
Dec06
Dec07
Dec08
Dec09
Sep07
Sep08
Sep09
Jun07
Jun08
Jun09
Jun10
60
%
55
% 200 200 200 201 201
H e a t hro w ma n p o wer ha s re d u ce d with 7 8 9 0 1
50
T5 Mix e d F le e t Crew Complement
% 8 ,00
0
7,50
0
125 0 18
7,00 re d u c t io n 0
0
16
6 ,50 0
0 14
0
6 ,00
0 12
0
5 ,50
10
Mar-10
0
Mar-07
Mar-06
Mar-08
Mar-09
Apr-05
Apr-08
Apr-09
Sep-07
Sep-08
0
8
Perio d En d M a n p o w e r Eq u ivale n t 0 Yr 1 Yr 2 Yr 3 Yr 4 Yr 5 Yr 6 Yr 7 Yr 8 Yr 9
(M P E) Yr 10
P re lim in a ry 2 0 0 8 / 0 9 fu ll ye a r re s u lt s M ay 2 2 , 6 C o m p le m e n t re d u c t io n M ix e d F le e t B e n e f it s
2009 0
4
0
2
0
British Airw a y s Re s t ru c tu r i0n g 42
BJI Consulting Ltd
0
De fin e d b e n e fit (D B ) d e fic it ha s De fin e d c o n tributio n s (D C) s c h e m e
re d u ce d g ro w in g
- 1, 8 0
0
DB
(500 1, 6 0 sche m es
) 0 DC
1, 4 0 schem e
( 1, 0 0 0 0 Other
) 1, 2 0
£m Surplus/(Deficit)
Number of members
0
( 1, 5 0 0 1, 0 0
) 0
80
( 2, 0 0 0 0
) 60
N AP
0
( 2, 5 0 0 S 40
) APS 0
20
( 3, 0 0 0 ) 0
M ar- 0 9 M ar- 1 0 M ar- 1 2 M ar- 1 3 -
S e p - 14* 17 21 25 29 33 37 41 45 49 53 57 61 65
69
Ag e (y e ars)
* BA
estima te
British Airw a y s Re s t ru c tu r i n g 42
BJI Consulting Ltd
1
Never ending modernisation agenda
Effic ie n cy im p ro v in g Re c e nt ind u strial

a g re e m e nt s
ASKs/M PE - 2 0 0 1 ind e xe d to 1 0 0
200
18 Ne w H e a t h ro w B a c k-
0
c u sto m er o ffice
16
0 bmi s e rvice s h a re d
14 i n te g ra t i o n c o n tra c ts s e rvice s
0
12
0
2 0 11 2012 2013 2014
1 80
00
6
Ga t w ick
0 ra m p
4 o u ts o u rc e d
0
2
0
Wo r ld-w i d e
0 g ro u n d
h a n dlin g
2005
2010
2015
2020
2001
2002
2003
2004
2006
2007
2008
2009
2011
2012
2013
2014
2016
2017
2018
2019
ASKs / M PE ASKs / M PE
His t o r ic F o re c a s t
British F u tu re
Airw a y s o p p o rt u n ity BJI Consulting Ltd 42
2
Partner activity
US Airways m ain hub s
Phila d e l p hia
Wa s h in g to n
Ph o e nix
Charlotte
Atla ntic J o int Re s t o f

Busin e s s World
• Ne w Am e r ica n a d d s 2 E a st Co a s t h u b s • Qatar
a n d 6 2 n e w US d o m e s t ic d e s t ina t i o n s o p p o rt u n ity
• AA e x t ra fre q u e n c y t o PHL fro m • C h ina c o d e s h a re
S1 5 ri g h ts
• AA 2 n d C h a r l o tt e flig h t t o LHR fro m • Co m air fra n c h i s e
Sept 14 re n e w e d
British F u tu re
Airw a y s o p p o rt u n ity 42
BJI Consulting Ltd
3
This afternoon……………………….
• GBS….example of ‘synergy’ for a group of airlines

• AF/KL/DL discussion / feedback
• Presentation preparation
42
BJI Consulting Ltd
4
Global Business
Services
BJI Consulting Ltd

425
Global Business Services (GBS): IAG‟s back office platform
• GBS is the Group‟s common IT, Procurement,

and Finance function
• GBS is creating a cost effective “plug & play”

platform for the Group that is scalable for growth
• GBS is driving standardisation, simplification and

efficiency across the Group
• GBS is attracting the best people and embracing

a new culture
• GBS is embedding modern working practices

and delivering a higher quality of service
GBS The IAG Platform

42
6
BJI Consulting Ltd
The GBS model
Market Flexible & Fast &

Competitive Scalable Agile
Dublin
London
Kraków
Barcelona
Madrid Delhi
Chennai
Mumbai & Pune
GBS Business model

42
7
BJI Consulting Ltd
Focus on Kraków
• Focus on Kraków IAG GBS Demographics

Kraków
• 80+ GBSs
• Capgemini, Cathay Pacific, GE, Google,
HSBC, IBM, Lufthansa, Motorola, Rolls Royce,
250
People
Sabre, Samsung, Serco, Shell, Tesco, UBS
• 46,000 80% 46:54

Millennials Male Female Ratio
• People Working in GBSs
50% 25%
• 48,000 2+ Languages Speak Spanish
• Graduates with Relevant Qualifications
GBS Kraków
428
BJI Consulting Ltd
IT progress: to date
IT 50% 50% 90/10 €90m

Targets Reduction in Reduction in Supplier Cost Savings
Applications Suppliers offshore ratio by end 2018
Original Scope 50% Complete Aer Lingus
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Tower 1 Tower 3 Tower 2 50% FTE

(EUC) Development (Service Ops) (Networks) Reduction
February 2016 Global Frameworks May 2016 December 2016
August 2016
March 2016
IB: Phase 1
BA: BA.com
IAG Cargo: Optima IB.com Check In
BA: Travel July 2016 Personalised
Revenue Management Programme Homepage
September 2015 August 2016
July 2016
GBS IT
429
BJI Consulting Ltd
W h e r e w e‟ve come from
Positives Negatives
• High availability of systems (99%+) • Complex systems (2,346 applications)
• Ability to make change happen at any point • Over 748 individual suppliers
• Agile application development providing speed • Fixed cost base with duplication across OpCos
to market within the Group
• A flexible integration platform sitting above our • Heavily customised applications with limited
legacy systems ability to change
• Strong aviation and technical knowledge of • Dependency on management consultants and

existing systems single points of failure
• Too many contractors on-shore (35%)
• Decentralised project portfolios within each

OpCo
• Risk of losing control of design and direction
G r o u p IT One year a g o
52
BJI Consulting Ltd

430
How w e‟re changing
Reducing unit costs Simplifying systems Shared solutions
Reduce our unit cost Simplify systems,

Enable scalable, shared
base creating a flexible removing duplication
solutions across IAG
model and improving capability
G r o u p IT St rat e g y
53

IT Operations Tower 1 Tower 2 Tower 3
End user computing Networks Service operations
(Desktop, laptops, printers) (Internet, LANs, network (Reducing unit
24x7 Service costs
Desk, Ops
security, WiFi, mobile) Monitoring Bridge)
Reducing our commodity costs

Action taken
OUTSOURCE* OUTSOURCE* OUTSOURCE*
38% 21% 52%

Cost savings Annual run Annual run Annual run
rate saving rate saving rate saving
of of of
€4.4m €8.4m €8.3m
Manpower Manpower Manpow

reduction reduction er
Manpower savings from 91 to from 59 reductio
15 to12 n
from 152 to 24
*Proposals subject to legal and local consultation
Reducing u n i t
G r o u p IT
costs 54

Procurement: progress to date
Procurement
Progress to date
Achieved through:
80% €100s m Building on
the past 2 • New partnerships • Specification challenge
years to
Resource Supplier • Make vs. buy analysis • Leveraging scale
deliver more
based in Savings • Demand management • Harmonisation
Krakow per year
Original Scope 100% Complete December 2015 Aer Lingus Vueling
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Supplier Savings Across
Customer & Fuel & MRO Aircraft IT / Property

Marketing Operations & Engines Corporate Services
GBS Procurement
43
3
BJI Consulting Ltd
Finance Factory: progress to date
Finance Factory
Progress to date
30-35%
Functional cost improvement
Original Scope 75% Complete Q1 2017 Aer Lingus
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Financial
Global Tax Treasury
Planning &
Transactions Compliance Operations
Analysis
GBS Finance Factory
434
BJI Consulting Ltd
GBS external cost benchmarking
IT
Cost per
end user
IAG Peer World Class
Procurement
Cost of function
as a proportion
of savings
Finance
Cost of function
as a proportion
of revenue
Source: The Hackett Group
GBS Benchmarking
435
BJI Consulting Ltd
Our GBS Journey
Centralise Optimise / Efficiencies Leveraging the GBS platform
2013 - 2015 2015 - 2017 2017 - 2021
Moving to the Cloud

Hackett Benchmark
Worldclass
Zero-Based Architecture
Creation of Nearshore Kraków Nearshore Fully Optimised
Lift & Shift Procurement, Finance & IT Finance & Procurement Complete Other Support Systems
Offshore Transactional Finance Offshore IT Towers Offshore Fully Leveraged
Savings, Scale & Simplification High Cost Efficiency Enable OpCos – Further Value
Focus on IB & BA On-Boarding New OpCo‟s Plug & Play Platform
GBS Timeline
43
6
BJI Consulting Ltd
Group Feedback Discussion – Alliance JV
Business Case AF/KL/DL
43
BJI Consulting Ltd
7
AF/KL/DL
An example of an extensive airline JV Agreement – this one on the North Atlantic

• JV Scope – transatlantic plus connecting flights
• Initially 10 years with 3 year extension option
• Termination 3 year clause
• Contractual – no separate legal entity = no major cross equity
• ‘Perceived’ as single business sharing cots and revenues
• Management structure –Exec 6 months – Steering committees 3 months plus
working groups
• Profit sharing – connecting on marginal basis
• Compensation formula for excess profits
• Costs – specific accounting system
• Bundle 1 and Bundle 2 agreements for network
Questions to discuss / answer:
What are the potential sources of conflict in the JV ?
How could you improve the Agreement Terms and method of management?
43
BJI Consulting Ltd
8
AF/KL/DL Questions – Areas of Potential Conflict
• Deltas expansion strategy – destinations / fleet e.g.

• Cost allocation – ‘actuals’ and problems with……
• Cost asymmetries
• Service differences
• FFP differences
• Fleet asymmetries – ‘fleet’ growth
• Out of sync economic cycles
• No credible termination threat
• Dumping capacity & cost on the JV
43
BJI Consulting Ltd
9
44
BJI Consulting Ltd
0
Potential Improvements
• Standard costs system

• Benchmarking costs to review initial standard costings
• Quality & service standards
• ”Merged” company
44
BJI Consulting Ltd
1
So far…………….
• Industry overview – context – major challenges & opportunities – social /
economic shifts globally
• Costs & Economics – metrics used – major cost inputs - savings &
synergies –JV’s & airline examples on procurement/back office savings
• Demand & Traffic forecasting – methods – segmentation – shifts globally
– flows – network planning
• Fleet Planning – economic and performance criteria – types –
developments
• Revenue & Yield management – optimization vz life time value – O & D
systems – future developments
• Marketing – operational to retailing view – customer focus –
personalization – digital – mobile – social media – customer experience –
distribution – NDC
• Alliances – types – developments – opportunities & challenges
• Business models – LCC – hybrid – legacy – airline LCC subsids – examples
• Business transformation – key areas for review and delivery of change
44
BJI Consulting Ltd
2
Today………..
• 0900-1015 – Aeropolitical issues & Environment

• 1045-1215 – Presentation preparation
• 1215-1345 Lunch
• 1345--1400 – Final Tweaks to Presentations
• 1400-1500ish Teams 1 / 2 / 3 / 4
• 1530/45 – 1630 Presentations 5 / 6 & Close
44
BJI Consulting Ltd
3
Module 9
Aeropolitical & Regulatory Issues
44
BJI Consulting Ltd
4
Key Questions
 Airline Liabilty?
 Where can scheduled airlines fly?
 What prices can they charge?
 What actions must they take to ensure safety?
 To what extent can they cooperate with other airlines?
 What laws apply when an airline can‟t pay its bills?
 Who can own and control an airline?
 How are airlines taxed?
 What labour laws affect airlines?
 Environment responsibilities
44
BJI Consulting Ltd
5
Liability – The Warsaw Convention
• Held in 1929 – attended by 33 states
• Liability for death or injury of passengers or loss or damage to
baggage or cargo
• How much should be paid? – Contract of carriage – limit set at
approximately USD8000.00
• Amended at Hague Protocol 1955
• Further amended at Montreal Interim Agreement 1966
• Further amended at Montreal Protocol 1974
• IATA Kuala Lumpur 1995 – IATA Inter-carrier Agreement on
Passenger Liability
• Finally Montreal Convention 1999 which effectively replaces
Warsaw Convention
44
BJI Consulting Ltd
6
Warsaw & Montreal Terms / Hague
• If passenger proves loss, carrier is deemed liable
• Passenger does not have to show negligence or fault by the
carrier
• Carrier can escape liability if it proves that all necessary
measures were taken to avoid damage
• BUT the passenger has to accept limit on the amount of
damages
• Liability limit is USD282,000 but carriers can opt for higher
limit or unlimited liability
• Therefore confusing situation of varied regimes in place
• SIA has signed Montreal Convention& Inter carrier agreement
and has opted for unlimited liability
44
BJI Consulting Ltd
7
The Chicago Convention
 The Chicago Conference of 1944 aimed to reach

agreement on two sets of problems:
 ICAO
 Freedom of the Air.
44
BJI Consulting Ltd
8
ICAO
The aims and objectives of ICAO are to develop the
principles and techniques of international air navigation and
to foster the planning and development of international air
transport so as to:
• Ensure the safe and orderly growth of international

civil aviation throughout the world
• Encourage the art of aircraft design and operation for
peaceful purposes
• Encourage the development of airways, airports, and
air navigation facilities for international civil aviation
• Prevent economic waste caused by unreason-able
competition
44
BJI Consulting Ltd
9
ICAO (contd.)
• Meet the needs of the peoples of the world for safe,
regular, efficient and economic air transport
• Ensure that the rights of Contracting States are fully
respected and that every Contracting State has a fair
opportunity to operate international airlines
• Avoid discrimination between Contracting States
• Promote safety of flight in international air navigation
• Promote generally the development of all aspects of
international civil aeronautics
45
BJI Consulting Ltd
0
Air Freedom Rights
• First Right to over fly another country
• Second Right to make a technical stop in that country
• Third Right to carriage to another country
• Fourth Right to carriage from another country
• Fifth Right of carriage between two foreign countries on flight
beginning or ending at home
• Sixth Right of carriage between two foreign countries with a stop in
between at home
45
BJI Consulting Ltd
1
Air Freedom Rights
• Seventh Freedom. The right to operate a passenger services between two

countries outside the home country.
• Eighth Freedom. Also referred to as "cabotage" privileges. It involves the right
to move passengers on a route from a home country to a destination country
that uses more than one stop along which passengers may be loaded and
unloaded.
• Ninth Freedom. Also referred to as "full cabotage" or "open-skies" privileges. It
involves the right of a home country to move passengers within another
country.
45
BJI Consulting Ltd
2
U.S. Airline Deregulation 1978 and EU
Deregulation
 Airlines were allowed to set their own prices and
schedules
 New entrants were given the right to compete
 In the US airlines like Pan Am, Braniff and Eastern
eventually collapsed
45
BJI Consulting Ltd
3
Open Skies - Liberalization
 In early 1990s the markets were opening internationally
– globalization trend – and the U.S, hoping to encourage
this , adopted an open skies policy, bilaterally removing
all price and schedule controls
 European carriers were not all in favour due to LCC
pressure. However KLM and Northwest went ahead and
„Open Skies‟ started between the Netherlands and US
 Other link ups and then Alliances followed
 Full US/Europe Open Skies was established in 2008
45
BJI Consulting Ltd
4
Alliances not Mergers - Antitrust laws
 Ownership rules
 Restrictions on traffic rights
 Competition laws / Anti-trust laws
 In general, governments forbid two competing companies to collude
on prices and other sensitive members.
 Alliance antitrust immunity is one exception
 This allows Interline agreements, code sharing, frequent flier
partnerships are other forms of legal cooperation
 But Antitrust laws still can be major issue during mergers
 BUT less jurisdictions are granting ant-trust immunity
45
BJI Consulting Ltd
5
Compliance – the critical need
• More and more jurisdictions are adopting

competition laws
• Air transportation is coming under increased scrutiny
• Increased demand for self assessment
• The regulatory environment is evolving
• Less jurisdictions are granting immunity
45
BJI Consulting Ltd
6
Compliance – Legal
• Competition laws are established to:

– Protect competition not competitors
– Benefit consumers, not particular individuals or firms
– Encourage innovation and consumer choice
– Optimize efficient allocation of resources
• Over 100 countries have adopted laws

– Extensive coordination between authorities
45
BJI Consulting Ltd
7
Competition Laws
In general, competition laws prohibit agreements or

understandings
between competitors or potential competitors with
respect to pricing, capacity or services.
An “agreement or understanding” can be written,

spoken, unspoken, and can be inferred from the
conduct of the parties without any showing of a
direct meeting of the minds. Even the wink of an eye
or nod of the head can be enough to form an
unlawful agreement.
45
BJI Consulting Ltd
8
The Industry‟s Environmental Challenge
45
BJI Consulting Ltd
9
Group Discussion
• What are the main environmental challenges that arise from operating an
airline?

Environment – now its for real
• Increasing direct economic impacts

• Generational shift in terms of recognition and priority
• Reputational and brand implications
• Recognition of tangible benefits both economic and to ‘culture’ of airlines
and aviation
461
BJI Consulting Ltd
46
2
BJI Consulting Ltd
Tackling the climate challenge
46
3
BJI Consulting Ltd
Setting the strategic direction
46
4
BJI Consulting Ltd
Making tactical improvements across the system
46
5
BJI Consulting Ltd
46
6
BJI Consulting Ltd
Could reduce CO2 from airline operations by up to 80%.
Industry is working with supply chain, researchers, civil society to
introduce sustainability standards.
Can be created from waste sources and non-food crops.
Over 5,500 commercial flights by end-2016.
46
7
BJI Consulting Ltd
46
8
BJI Consulting Ltd
46
9
BJI Consulting Ltd
47
0
BJI Consulting Ltd
Paris Agreement provided
momentum to ICAO discussions
 Paris Agreement expected to

enter into force from 2020
 Based on „bottom-up‟ principle
through INDCs
 Secures use of market
instruments for climate action
 Leaves aviation and shipping out
– to be progressed through ICAO
and IMO
47
1
BJI Consulting Ltd
Historic decision at ICAO Assembly
Nearly all 191 ICAO States supported ‘CORSIA’
Industry was instrumental in agreement

Seven years since industry set goals and started pushing for
a global MBM
47
2
BJI Consulting Ltd
Aviation‟s global market-based measure agreed
• Addresses increase in CO2 emissions
from international civil aviation above
2020 levels
• The market-based measure applying to
CO2 emissions from international
aviation
• Complements a broader package of
measures to achieve CNG2020
• Phased-implementation to address
principles of Common but
Differentiated Responsibilities (CBDR)
and Special Circumstances and
Respective Capabilities (SCRC)
47
3
BJI Consulting Ltd
47
4
BJI Consulting Ltd
ICAO has considered three MBM options
Global levy Global emissions Global offsetting

trading scheme
47
5
BJI Consulting Ltd
ICAO has considered three MBM options
Offsetting:
 Ties in with existing UNFCCC
infrastructure
 Is simple enough to be
implemented by all countries by
2020
 More cost-effective than a tax or
levy Global levy Global emissions
Global offsettin
 Less complex than an emissions trading scheme
trading scheme
 Provides environmental integrity
through funding of offset projects
worldwide
47
6
BJI Consulting Ltd
How does CORSIA work?
47
7
BJI Consulting Ltd
States included in the first(voluntary) phases?
47
8
BJI Consulting Ltd
Route-based approach means market distortion
limited
Included
from 2021
Included
from 2027
Exempt from
CORSIA
479
BJI Consulting Ltd
Other considerations of the CORSIA
48
0
BJI Consulting Ltd
How much will
the CORSIA cost?
48
1
BJI Consulting Ltd
How will offsetting
work for aviation?
48
2
BJI Consulting Ltd
How will offsetting
work for aviation?
48
3
BJI Consulting Ltd
How will offsetting
work for aviation?
48
4
BJI Consulting Ltd
How will offsetting
work for aviation?
48
5
BJI Consulting Ltd
How will offsetting
work for aviation?
48
6
BJI Consulting Ltd
How will offsetting
work for aviation?
48
7
BJI Consulting Ltd
How will offsetting
work for aviation?
48
8
BJI Consulting Ltd
How will offsetting
work for aviation?
48
9
BJI Consulting Ltd
How will offsetting
work for aviation?
49
0
BJI Consulting Ltd
How will offsetting
work for aviation?
49
1
BJI Consulting Ltd
How will offsetting
work for aviation?
49
2
BJI Consulting Ltd
How will offsetting
work for aviation?
49
3
BJI Consulting Ltd
Next steps in implementation of CORSIA by 2020
• Capacity building to help States / operators to prepare for MRV and offset
purchasing
• Finalization of two remaining technical standards and guidance material:
– Monitoring, reporting and verification protocols
– Emissions unit criteria to determine credit eligibility under CORSIA
• The architecture of the scheme: national and global registries
49
4
BJI Consulting Ltd
The Assignment
• Preparation > practice > deliver !
• 15/20 minute presentation using PowerPoint and any other
media/props/handouts/gifts etc. – present marketing plan for
Airline BJI
• Use the brief as a start point. You can add assumptions.
• Use some of the concepts we have discussed
• Think creatively – think outside the box
• Feel free to se some humor in your presentation
• Think about : advertising campaigns/distribution
channels/product air-ground/scheduled vs. low cost vs. full
service vs. hybrid / alliances – to compete or
cooperate/domestic versus int’l structure / disruptive
technology possibilities / CEM implications…and more !
• No right or wrong answer – looking for possibilities / change
49
BJI Consulting Ltd
5
The Marketing Plan – basic outline
• Vison & Mission of the airline – including name / brand

• Market overview
• SWOT analysis
• Assumptions
• Marketing objectives/strategies
• Forecast/budgets
49
BJI Consulting Ltd
6
Presentations : Things to look for
• Does the presentation have impact?...what is remembered?
• Is there a flow to the presentation?
• Are ideas/objectives well explained?
• Innovative ideas??????
• Use of visual images/layout vs too much text and lists
• Use of the team members vs just one
• Is it convincing?
• How well did the group deal with questions?
• Did they keep your interest and attention at all times?
BJI Consulting497
Ltd
Course Objectives
• To broaden knowledge of the global airline industry, with

discussion of its challenges and opportunities
• To gain a deeper understanding of the different elements of

managing an airline business
49
BJI Consulting Ltd
8
Themes…………………..
• Competitor awareness – new and emerging threats & opportunities
• Customer awareness / market research
• Industry knowledge / awareness – be curious – social/economic trends
• Understanding the ‘system as a whole’ – interactions and possibilities
• Financial awareness and understanding
• Delivery of real and relevant customer experience and recognition
• Delivery of actual synergies not just business cases
• Alliance / JV / codeshare value delivery
• Digital & mobile opportunities – improving customer ease of travel
experience
• Distribution opportunities/ ancilliaries / other partners
• Disruption handling challenges 7 solutions
• Cross cultural and communication skills / understanding
• Business transformation skills and delivery – building on work done so far
49
BJI Consulting Ltd
9

Airline Industry Course Level 2

Uploaded by

Copyright:

Available Formats

Airline Industry Course Level 2

Uploaded by

Document Information

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Airline Industry Course Level 2

Uploaded by

Copyright:

Available Formats

The Airline Industry

14-17th November 2017 Singapore

WHO are you ?

BJI Consulting Ltd 2

• Be curious….be questioning….. The more you push me the

• The student file / powerpoints give you plenty of information.

• BUT if you have specific interest in a topic not covered I can

BJI Consulting Ltd 4

• To broaden knowledge of the global airline industry, with

• To gain a deeper understanding of the different elements of

BJI Consulting Ltd 5

• Airline Industry Overview – structure, trends & current

BJI Consulting Ltd 6

BJI Consulting Ltd 7

What are the challenges and opportunities for

BJI Consulting Ltd 8

BJI Consulting Ltd 9

• Economic uncertainty globally – BREXIT just the latest!

BJI Consulting Ltd 10

• 56.6m jobs supported by aviation

• World economic growth

BJI Consulting Ltd 12

BJI Consulting Ltd 13

Source: ICAO, IATA, http://www.iata.org/pressroom/facts_figures/Pages/vision-2050.aspx BJI Consulting Ltd 14

10.0 Global commercial airline profitability 40

BJI Consulting Ltd 15

10 IMF forecasts for economic growth Forecast

BJI Consulting Ltd 19

BJI Consulting Ltd 20

Revenue from tickets

Cargo revenues, US$

400 Revenue from 50

BJI Consulting Ltd 21

20000 Unique city-pairs and real transport costs 2.50

BJI Consulting Ltd 22

Value of traded goods carried by air 7000

Traded goods, US$ billion

Flybe 15% United Alaska

Source: IdeaWorks, Airline Analyst, IATA

US Pre-tax profits, year to Q32105

BJI Consulting Ltd 25

Breakeven and achieved weight load factor

BJI Consulting Ltd 26

15% Operating profit margins by region, 2016 vs 2010

BJI Consulting Ltd 27

Source: IATA 2013 study BJI Consulting Ltd 28

International trade compared to global industrial production

BJI Consulting Ltd 29

 Travel business remains strong

 Cargo slowly improving

 A second year of „normal‟ profits

 „Normality‟ not yet widespread or secure

BJI Consulting Ltd 30

Global RPK growth and passenger numbers

Numbers of passengers, million

BJI Consulting Ltd 31

Source : IATA Chart of the Week Jun2 2017

% year-on-year Diffusion index

BJI Consulting Ltd 33

RPKgrowth by int'l route and dom. market (latest month, % year-on-year*)